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Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5XXXXX
XXXXX
XXXXX
XXXXXAttention: XXXXX
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Case Number: 33100XXXXXAugust 7, 2002
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Subject:
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GST/HST APPLICATION RULING
XXXXX
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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 is as follows:
XXXXX. (the Company) imports and sells various nutritional products. The four products at issue in this case are described as follows.
XXXXX (Product A)
• Product A is a non-carbonated liquid vitamin-mineral concentrate.
• Product A contains no fruit, fruit juice or fruit flavouring.
• Product A contains the Non-Medicinal Ingredients: XXXXX XXXXX.
• According to the Product A label, the directions for use are as follows:
XXXXX
• A XXXXX of Product A contains; XXXXX In addition, Product A contains the following non-medicinal ingredients; XXXXX.
• The Product A label states XXXXX.
• Product A has a Drug Identification Number (XXXXX)
XXXXX (Product B)
• Product B is a non-carbonated liquid vitamin and mineral concentrate.
• Product B contains no fruit, fruit juice or fruit flavouring.
• Product B contains the Non-Medicinal Ingredient: XXXXX.
• According to the Product B label, the directions for use are as follows:
XXXXX
• A XXXXX of Product B contains; XXXXX[.] In addition, Product B contains the following non-medicinal ingredient; XXXXX
• The Product B label states XXXXX.
• The label also states, XXXXX
• Product B has a Drug Identification Number (XXXXX).
XXXXX (Product C)
• Product C is a non-carbonated XXXXX concentrate.
• Product C contains no fruit, fruit juice or fruit flavouring.
• According to the Product C label, the recommended use is as follows:
XXXXX
• The Product C label states, XXXXX
• XXXXX XXXXX (Product D)
• Product D is a non-carbonated fruit-flavoured XXXXX concentrate.
• Product D contains XXXXX
• According to the Product D label, the recommended use is as follows:
XXXXX
• The Product D label states, XXXXX
• XXXXX XXXXX
Ruling Requested
The products are zero-rated 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 Products A through D are taxable at 7% (or 15% 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
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 (i.e., taxed at a rate of 0%) 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% if made in a province participating in the Harmonized Sales Tax) because they are excluded from zero-rating by paragraphs 1(a) to 1(r) of Part III.
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. 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. In addition, individual preferences for, or dislikes of, certain products would not alter general perceptions of food or beverages.
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 labeled, 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.
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. 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. The following are some of the factors that apply to Products A to D:
• 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. Products that advertise or market the purity or superior source of a nutrient(s) would also indicate an emphasis on that particular nutrient. Product A and B are labelled as vitamin-mineral drinks for therapeutic use only. XXXXX Product C and D emphasize the superior source or potency of the particular plant concentrate and are marketed on the basis of their therapeutic or preventative effects.
• Products that are labelled for restricted consumption or with specific frequencies or quantities of dosage would not be considered to be a food, beverage, or ingredient. Product A, B, C, D have directions for restricted consumption or specific frequency of consumption.
• Products that have a Drug Identification Number (DIN) indicate that the product is promoted and consumed for its beneficial effects. However, the absence of a DIN number does not necessarily mean that a product is considered to be a food or a beverage. Product A and B have a DIN.
• Product A and B have product names that would lead a consumer to conclude that the principal purpose for consuming the product is for a therapeutic or preventative effect since they draw attention to the vitamin-mineral quality of the product.
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 & GST/HST Rulings Directorate
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