14 November 2002 GST/HST Ruling 42954 - Application of the GST/HST to Chocolate Flavoured 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 chocolate flavoured XXXXX powdered drink mix ("the product").

Statement of Facts

Our understanding of the facts is as follows:

•   Product labelling indicates that the product is marketed as a food supplement, designed to provide users with high-quality protein and carbohydrates, as well as vitamins, minerals and other important micronutrients. The product is available in XXXXX packets. Directions for use indicate that a packet is to be mixed with XXXXX of partly skimmed milk and mixed in a blender or shaker.

Ruling Requested

You requested a ruling as to whether the chocolate flavour of the product was zero-rated, pursuant to section 1 of Part III of Schedule VI to the Excise Tax Act (ETA).

Previous Ruling Given

XXXXX the CCRA ruled that the chocolate flavour of the product was zero-rated, pursuant to section 1 of Part III of Schedule VI to the ETA.

Having reviewed the facts of this case, we are pleased to provide you the following revised ruling.

Revised Ruling Given

Based on the facts set out above, we rule that the supply of the chocolate flavour of the product is taxable at 7% GST (or 15% HST, as applicable) pursuant to section 165 of the ETA.

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 Excise Tax Act, or to our interpretative policy; and that you have fully described all necessary facts and transactions for which you requested a ruling.

Explanation

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%.

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. Additionally, a product that is marketed for its beneficial effects, and that is added to a food or beverage simply as a means of consuming it, would not be considered as an ingredient to a food or beverage simply because it is ingested in this manner.

In addition, if a product identifies itself as a 'supplement', 'dietary supplement', 'food supplement' or other type of similar 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.

The CCRA considers such things as labelling, packaging and marketing when determining a products tax status. As previously stated, the product, which is labelled and marketed as a food supplement, designed to provide users with high-quality protein and carbohydrates, as well as vitamins, minerals and other important micronutrients, is in powdered form and must be mixed with a specified quantity of milk in order to be consumed. It is the CCRA's position that this product is not considered to be a food, beverage or ingredient and is therefore taxable at 7% (or 15% as applicable).

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