27 December 2000 GST/HST Interpretation 30657 - Tax Treatment of Dietary Supplements and Protein Drinks

Dear XXXXX

This is in reply to your facsimile letter of February 24, 2000, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to various products which you sell.

You had originally sent your inquiry to our XXXXX office, but it has since been transferred here to Ottawa for our review. We regret the delay in responding to you.

Please note that as of November 1, 1999, Revenue Canada became the Canada Customs and Revenue Agency ("CCRA").

Interpretation Requested

You have requested general information on the supply of dietary supplements and drinks. You have asked for information as to whether the following attract the GST:

•   "High Calorie" powdered dietary supplements which are intended for weight gain;

•   Other powdered protein formulas which have added supplemental ingredients but are not meal replacements; and

•   Protein drinks which are heavy protein supplements, but are not meal replacements.

In addition, you ask the questions which are set out below.

•   Where does a bar stop being an "energy bar" and start being a meal replacement?

•   What is the definition of "beverage", as described in paragraph 1(d) of Part III of Schedule VI to the Excise Tax Act ("ETA")?

•   If a wholesale supplier charges the GST on the supply of a product, is it correct, generally, that this is an indication that the re-supply of this product attracts GST at the retail level to customers?

Interpretation Given

Generally, every recipient of a taxable supply made in Canada shall pay to Her Majesty in right of Canada tax in respect of the supply calculated at the GST rate of 7% (or HST rate of 15%, as applicable) on the value of the consideration for the supply. Where, however, a supply is a zero-rated supply, the tax rate in respect of that supply is 0%. (Section 165 of the Excise Tax Act.)

Food and Beverages for Human Consumption

Section 1 of Part III of Schedule VI to the ETA provides zero-rated status to food or beverages supplied for human consumption, including sweetening agents, seasonings and other ingredients to be mixed with or used in the preparation of such food or beverages unless the food or beverages are specifically excluded from zero-rating under the provisions of paragraphs 1(a) to 1(r) of Part III of Schedule VI to the ETA.

GST/HST Memorandum Series, Chapter 4.3, Basic Groceries provides the CCRA's administrative interpretation with respect to the application of Section 1 of Part III of Schedule VI to the ETA to the supply of basic groceries in general and in particular to the supply of food or beverages which are specifically excluded from zero-rating under the provisions of paragraphs 1(a) to 1(r) of Part III of Schedule VI to the ETA.

Tax Treatment of Dietary Supplements

In general, it is the CCRA's position that dietary supplements are not considered to be food in the nature of basic groceries. Dietary supplements are not consumed to alleviate hunger as basic groceries are, but rather they are taken to supplement deficiencies in a person's diet. Dietary supplements are supplied in various formats - made from synthetic or natural ingredients and produced in tablet, pill, capsule, or granulated or powdered form, and commonly sold by pharmacies, and health food shops. Examples include alfalfa, yeast, ginseng, lecithin, bee pollen, seaweed or fibre produced in tablet, pill and capsule form as well as in powdered and liquid form. (GST/HST Memorandum Series, Chapter 4.3 Basic Groceries, par. 16.)

Dietary supplements in pill, capsule, tablet, or similar format are not considered basic groceries. The supply of these goods is taxable at the GST rate of 7% (or the HST rate of 15%, as applicable). (Supra, footnote 2, par. 17.) However, powdered dietary supplements, that are ingredients in food, or mixed with water or other fluids to form a beverage, (other than a beverage described in paragraph 1(d) of Part III of Schedule VI to the ETA), are zero-rated. We emphasize that the product that results from being mixed with water, etc. must meet the administrative definition of "beverage", assigned by the CCRA, which is described below. Also, please note that paragraph 1(d) refers to non-carbonated fruit drinks and fruit-flavoured beverages that contain less than 25% natural fruit juice, including reconstituted juice. All other powdered dietary supplements are taxable at 7% or 15%. (Supra, footnote 2, par. 18.)

Where the dietary supplement is supplied in liquid form, as a beverage, it falls under the provisions of paragraph 1(n) of Part III of Schedule VI to the ETA. (Supra, footnote 2, par. 19.) (Again, we emphasize that the product must meet the administrative definition of "beverage".) Supplies of beverages (other than unflavoured milk), or pudding, including flavoured gelatine, mousse, flavoured whipped dessert product or any other products similar to pudding are taxable at 7% or 15%, except (Supra, footnote 2, par. 72.)

(a) when prepared and pre-packaged specially for consumption by babies,

(b) when sold in multiples, pre-packaged by the manufacturer or producer, of single servings, or

(c) when the cans, bottles or other primary containers in which the beverages or products are sold contain a quantity exceeding a single serving.

The single serving threshold for beverages includes all servings under 600 mL in volume. (Supra, footnote 2, par. 74.)

Meal Replacements

A "meal replacement" is defined by the Regulations to the Food and Drug Act to be "a formulated food that, by itself, can replace one or more daily meals". (B.01.001 of Division I.) Further, a meal replacement must meet the following requirements:

•   it must provide a minimum of 225 kcal;

•   it has both minimum and maximum fat content requirements; and

•   it has minimum and maximum content requirements for vitamins and minerals.

Finally, in order for a product such as a bar to be labelled and sold as being a meal replacement, it must also comply with the labelling requirements under the Food and Drug Act and its Regulations.

It is the CCRA's position that only those products which fit within the above definition and labelling requirements are "meal replacements".

Definition of Beverage

The word "beverage" is not defined in the ETA. However, the CCRA administratively defines it as follows: a "beverage" is a drink that is consumed for pleasure or to quench thirst.

Determination of Tax Treatment

You have asked if the fact that there is GST on a product at the wholesale level is a reliable indicator that there is GST on the product at the retail level.

The tax treatment of supplies of goods and services is determined by reference to the ETA. We would emphasize that where there is a dispute or a question as to the correct tax treatment of a product, reference should be made to this legislation or inquiries can be made at your local Tax Services Office of the CCRA. The mere fact that a wholesaler has charged GST on a product is not, in and of itself, determinative that the GST has been correctly applied.

However, we would make the general statement that, where the wholesaler and retailer are both registrants for purposes of the ETA and where a wholesale supplier correctly charges the GST on the supply of a product to a retailer, then the re-supply of the product by the retailer also attracts GST at the retail level to its customers, subject to any exceptions or exemptions imposed on the retailer pursuant to the ETA.

The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the ETA, if enacted, could have an effect on the interpretation provided herein. These comments are not rulings and, in accordance with the guidelines set out in section 1.4 of Chapter 1 of the GST/HST Memoranda Series, do not bind the CCRA with respect to a particular situation.

For your convenience, please find enclosed a copy of GST/HST Memorandum Series Chapter 4.3, Basic Groceries.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-9585.

Yours truly,

Pauline Greenblatt
Goods Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate