23 December 2002 GST/HST Ruling 43026 - Application of the GST/HST to Powdered Drink Mix

Dear XXXXX

This letter is further to our letter dated XXXXX, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to XXXXX powdered drink mix (the Product).

Statement of Facts

Our understanding of the facts is as follows:

1. Your client, XXXXX, sells the Product in XXXXX flavour.

2. The Product is marketed as XXXXX. The advertising for this Product indicates that it is formulated to XXXXX.

3. The directions on the label recommend the following ways to mix the powder to form a mixture for consumption XXXXX:

XXXXX

4. XXXXX

5. The XXXXX TIS office of the Canada Customs and Revenue Agency ("CCRA") issued an interpretation on the Product to the company, dated XXXXX. The interpretation stated that the Product was a zero-rated milk based beverage. Based on this, the company supplied the Product on a zero-rated basis.

6. XXXXX determined that the Product was actually taxable at 7% GST or 15% HST, as applicable. In a letter to the company dated XXXXX confirmed that, effective XXXXX, the company had agreed to charge, collect and remit tax on the Product. XXXXX also advised the company that, effective XXXXX, the interpretation letter dated XXXXX, was inoperative.

7. As per the agreement with the CCRA, the company has been collecting tax on the Product since XXXXX.

Ruling Requested

That the supply of the Product is zero-rated, pursuant to section 1 of Part III of Schedule VI to the Excise Tax Act (ETA).

Previous Ruling Given

Based on the facts set out above we ruled that the supply of the Product was taxable at the rate of 7% GST or 15% HST, as applicable, pursuant to paragraph 1(d) of Part III of Schedule VI to the ETA.

Revised Ruling Given

Having reviewed the facts of this case, we confirm that the supply of the Product is taxable at 7% or 15%, as applicable. However, it should be noted that this Product is taxable pursuant to section 165 of the ETA and not section 1(d) of Part III of Schedule VI to the ETA as previously indicated.

This ruling supersedes our previous ruling dated XXXXX.

This ruling is subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST/HST Memoranda Series. We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal; that there are no relevant changes in the future to the ETA, or to our interpretative policy; and that you have fully described all necessary facts and transactions for which you requested a ruling.

Revised Explanation

The terms "food" and "beverage" are not defined in the ETA. However, the CCRA position is that these terms are to be construed according to their ordinary meaning. That is, a food or a beverage is a good that an average consumer would recognize and purchase as such in the ordinary course of buying basic groceries.

Pursuant to GST/HST Policy Statement P-240, Application of GST/HST to Products Commonly described as "Dietary Supplements", if a product identifies itself as a 'supplement', 'dietary supplement', 'food supplement' or other similar type of supplement, this is an indication that the product is consumed for the purpose of enhancing or improving a person's state of health and not as a food, beverage or ingredient.

Among other factors, the CCRA will consider labelling, packaging and marketing to determine whether a product would be considered a "food", "beverage", or "ingredient".

Directions for use for the Product are to XXXXX. These types of directions or restrictions relating to the amount to be consumed generally indicate that the product is being consumed for a purpose other than as a food, beverage or ingredient.

The Product is marketed XXXXX. Products that place an emphasis on claims relating to the benefits of the product such as therapeutic or preventative effects, or claim to enhance performance or physique are not considered to be a food or beverage.

As a result of the above, the CCRA considers that the Product is not a food, beverage or ingredient and is therefore taxable at 7% GST or 15% HST, as applicable, pursuant to section 165 of the ETA.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 954-5124.

Yours truly,

Nicole Thomas
Rulings Officer
Goods Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate