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Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5XXXXX
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Case Number: 41783November 7, 2002
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Subject:
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GST/HST APPLICATION RULING
GST/HST Ruling Request for Dietary Supplements
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Dear Sir:
We are responding to the letter submitted by XXXXX, on your behalf, dated XXXXX (with attachments), concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the products described below.
Statement of Facts
Our understanding of the facts, is as follows:
1. XXXXX (Product A)
• Product A is sold in packages of XXXXX capsules
• Product A states "Note: For therapeutic use only"
• Product A directions state XXXXX
2. XXXXX (Product B)
• Product B is sold in packages of XXXXX flavoured wafers
• Product B states "Note: For therapeutic use only"
• Product B directions state, XXXXX
• Product B is labelled as a vitamin and mineral supplement.
3. XXXXX (Product C)
• Product C is a XXXXX energy bar
• The flavours of Product C are: XXXXX
• All of the flavours of Product C are XXXXX chocolate-coated.
4. XXXXX (Product D)
• Product D is a XXXXX energy bar.
• Product D is available in XXXXX flavours.
• All of the flavours of Product D are chocolate-coated.
5. XXXXX (Product E)
• Product E is a XXXXX bar labelled as a nutritional supplement.
• Product E is available in XXXXX flavours.
• All of the flavours of Product E are chocolate-coated.
6. XXXXX (Product F)
• Product F is an XXXXX flavoured powder
• Product F states "Note: For therapeutic use only"
• Product F directions state, XXXXX
• Product F is labelled as a vitamin and mineral supplement
7. XXXXX (Product G)
• Product G is an XXXXX powder
• Product G states "Note: For therapeutic use only"
• Product G directions state, XXXXX
• Product G is labelled as a vitamin and mineral supplement
8. XXXXX (Product H)
• Product H is available in XXXXX flavoured powder
• Product H states "Note: For therapeutic use only"
• Product H directions state, XXXXX
• Product H is labelled as a vitamin and mineral supplement
9. XXXXX (Product I)
• Product I is an XXXXX powder
• Product I states "Note: For therapeutic use only"
• Product I directions state XXXXX
• Product I is labelled as a vitamin and mineral supplement
10. XXXXX (Product J)
• Product J is available in XXXXX flavoured powder
• Product J states "Note: For therapeutic use only"
• Product J directions state, XXXXX
• Product J is labelled as a vitamin and mineral supplement
11. XXXXX (Product K)
• Product K is sold in XXXXX containers.
• Product K states "Note: For therapeutic use only"
• Product K directions state, XXXXX
Ruling Requested
You have requested a ruling on the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to supplements in powder, bar, wafer and capsule form.
Ruling Given
Based on the facts set out above, we rule that:
1. Products C and D are excluded from zero-rating pursuant to paragraph 1(e) of Part III of Schedule VI to the Excise Tax Act (ETA) and are therefore taxable at 7% GST (or 15% HST, as applicable).
2. Product E is a zero-rated (taxable at 0%) supply pursuant to section 1 of Part III of Schedule VI to the ETA.
3. Products A, B, F, G, H, I, J and K are taxable at 7% GST (or 15% HST, as applicable) pursuant to section 165 of the ETA.
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 transaction(s) 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 supply of basic groceries, which includes the majority of supplies of food and beverages marketed for human consumption (including sweetening agents, seasonings and other ingredients to be mixed with or used in the preparation of such food or beverages), is zero-rated pursuant to Part III of Schedule VI to the Excise Tax Act (ETA). Paragraph 1(e) of Part III excludes from zero-rating supplies of candies, confectionary that may be classed as candy, or any goods sold as candies, such as candy floss, chewing gum and chocolate, whether naturally or artificially sweetened, and including fruits, seeds, nuts and popcorn when they are coated or treated with candy, chocolate, honey, molasses, sugar, syrup or artificial sweeteners. Therefore, Products C (all flavours) and D (all flavours) are taxable at the GST rate of 7% or the HST rate of 15% in participating provinces pursuant to section 165 of the ETA.
It is our view that products that qualify and are labelled as "nutritional supplements" or "meal replacements" pursuant to the Food and Drugs Act (FDA) and Regulations are considered food or beverages for purposes of section 1 of Part III of Schedule VI to the ETA. Moreover, they are not subject to the exclusions under paragraphs 1(a) to 1(r) of Part III and, therefore, are zero-rated. The supply of Product E, a "nutritional supplement", is a zero-rated supply.
The terms "food" and "beverage" are not defined in the ETA. 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 a food or beverage in the ordinary course of buying basic groceries. Products that meet special dietary needs of certain segments of the population such as those with restricted or special purpose diets, high performance athletes and dieters may not necessarily be viewed by the average consumer as a food or a beverage.
Consumers usually consume food for enjoyment or to allay hunger, while beverages are usually consumed for enjoyment or to quench thirst. Therefore, the CCRA generally considers 'food' and 'beverages' as goods consumed to sustain or maintain life, to allay hunger or thirst, or for enjoyment rather than for therapeutic or preventative effects or to achieve specific beneficial effects related to performance or physique. Products A, B, F, G, H, I, J and K are identified as being "For therapeutic use only".
Products that are labelled or marketed as products to be consumed to facilitate the intake of certain ingredients (nutritive or otherwise) or which place an emphasis on claims relating to the benefits of the product are not considered to be products that an average consumer would ordinarily purchase in the course of buying food or beverages. For example products that claim to have therapeutic or preventative effects, or claim to enhance performance or physique are represented as being for another purpose and so are not considered to be 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 by an average consumer as an ingredient simply because it is ingested in this manner.
There are a number of factors that the CCRA considers in determining whether a product would be considered by an average consumer to be a food, beverage or ingredient.
One factor that is considered in determining whether a product is a food, beverage or ingredient is whether the product identifies itself as a 'supplement', 'dietary supplement', 'food supplement' or other type of similar supplement. (Note that this factor does not apply to products that are labelled in accordance with the FDA as "nutritional supplements".) Such identification may be 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. Products B, F, G, H, I, and J identify themselves as a vitamin and mineral supplement.
Directions for use or restrictions relating to the amount to be consumed are generally not characteristics of products that the average consumer would consider to be a food, beverage or ingredient. Such directions or restrictions indicate that the product is being consumed for a purpose other than as a food, beverage or ingredient. Products A, B, F, G, H, I, J, and K have directions of use or restrictions.
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
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