7 October 2002 GST/HST Ruling 31336 - Tax Status of Powdered Supplements

Dear XXXXX:

Thank you for your letter of XXXXX ), 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 as submitted and information available on the various XXXXX are as follows:

Product 1:

XXXXX Product 1 is a powder consisting of a blend of XXXXX nutrients including XXXXX[.] The manufacturer promotes the beneficial effects of consuming Product 1 for the following people: XXXXX Product 1 is promoted to affect personal health in the following ways: XXXXX According to the manufacturer's directions of how to use Product 1, it can be taken XXXXX

XXXXX

Product 2:

XXXXX

Product 2 is a powder consisting of various XXXXX Product 2 is labelled and promoted as a product consumed to "XXXXX " through enhanced fibre for healthy XXXXX.

The manufacturer's directions for consumption are: XXXXX

Product 3:

XXXXX Product 3 is a powder described as XXXXX XXXXX.

Product 3 is described as a powerful combination of XXXXX Product 3 is promoted as a natural choice for XXXXX.

Ruling Requested

Are the listed products zero-rated supplies pursuant to section 1 of Part III of Schedule VI to the Excise Tax Act (ETA)?

Ruling Given

Based on the facts set out above, we rule that all of the above-described powdered products are considered to be dietary supplements and are taxable at 7% GST (or 15% HST, as applicable).

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%.

A supply of food or beverages 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 section 1 of Part III of Schedule VI to the ETA. Certain food or beverages (e.g., carbonated beverages) are taxable at 7% (or 15% in participating provinces) because they are excluded from zero-rating by paragraphs 1(a) to 1(r) of Part III. For example, paragraph 1(e) of Part III excludes from zero-rating supplies of candies, confectionery 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.

The terms "food" and "beverage" are not defined in the ETA. The CCRA considers that a product is a food or a beverage if an average consumer would recognize and purchase the product as a food or beverage in the ordinary course of buying basic groceries. Put differently, products would be considered to be a food or a beverage if they would be consumed by an average consumer when food or beverages are typically consumed, such as at mealtimes or for a snack.

Consumers usually consume food for enjoyment or to allay hunger, while beverages are usually consumed for enjoyment or to quench thirst. That is, food and beverages are consumed to sustain or maintain life, to allay hunger or thirst, or for enjoyment, rather than for therapeutic or preventative effects (e.g., to correct actual or perceived health problems) or to achieve specific beneficial effects related to performance or physique. Therefore, products that are labelled, packaged 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, for example, therapeutic or preventive effects, or enhancing performance or physique, are not considered to be products that an average consumer would ordinarily purchase in the course of buying food or beverages. Moreover, 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 food or beverages.

Products commonly described as "dietary supplements" are not considered to be food, beverages or ingredients, and are taxable at 7% GST or 15% HST. Such products are generally made from synthetic or natural ingredients that are ingestible and that may be nutritive. They are available in a variety of formats: solids, (including powders), pills, capsules, gels, liquids (including oil) and tinctures. They may contain vitamins, minerals, fibre, protein, amino acids, fatty acids, enzymes, or compounds derived from plant or animal products. As mentioned earlier, these products are purchased and consumed for therapeutic or preventative purposes or to achieve specific beneficial effects.

It should be noted that products which qualify and are labelled as "nutritional supplements" or "meal replacements" pursuant to the Food and Drugs Act and Regulations (FDR) 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.

Furthermore, the CCRA considers a product to be an ingredient if an average consumer would recognize the product as an ingredient into food or a beverage, and it is the view of the CCRA that an average consumer would consider a product to be an ingredient if the product added to flavour, texture or appearance of the final product; that is, if it was integral to the final product. As with food and beverages, it is also recognized that products that are consumed for their therapeutic, preventative, or performance or physique enhancing properties would not be recognized by an average consumer as ingredients. Moreover, in order to be regarded as an ingredient to a food or beverage, the final product, in and of itself, would be considered to be a food or beverage by the average consumer.

Finally, 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.

If a product's tax status is in doubt, the CCRA will consider the manner in which the product is labelled, packaged, and marketed to determine its tax status. For greater detail, please refer to GST/HST Policy Statement P-240, Application of GST/HST to Products Commonly described as "Dietary Supplements".

As noted above, 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, for example, therapeutic or preventative effects, or enhancing performance or physique, are not considered to be products that an average consumer would ordinarily purchase in the course of buying food or beverages. Rather, these products are represented as being for another purpose and so are not considered to be basic groceries. All of the products described in this letter place an emphasis on their therapeutic or preventative benefits.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-9218.

Yours truly,

Kevin W. Smith
Goods Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate