18 July 2002 GST/HST Ruling 37749 - Vitamin/Mineral Supplements and Protein Bars

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:

A. XXXXX (Product A)

1. Product A is a powdered vitamin and mineral drink packaged in XXXXX packets (XXXXX packets per box) intended to be mixed with XXXXX of cold water or milk before consumption.

2. Product A is manufactured by XXXXX of XXXXX. and imported into Canada.

3. According to the label, Product A contains the following:

•   XXXXX of exclusive XXXXX protein,

•   XXXXX essential vitamins and minerals,

•   XXXXX of calcium,

•   XXXXX of fat,

•   high concentration of glutamine, and

•   XXXXX lactose free.

4. The label for Product A states that it is for therapeutic use only with a recommended adult dose of one serving (XXXXX packet) daily.

5. The label for Product A identifies the various ingredients as either Medicinal Ingredients or as Non-Medicinal Ingredients.

6. Product A has been issued a Drug Identification Number (XXXXX).

7. XXXXX XXXXX XXXXX — XXXXX XXXXX[.]

8.  Product A is available in various flavours including chocolate (sample provided).

9. According to the XXXXX, a consumer can lose body fat and sculpt their body by using Product A. The XXXXX claims that using Product A coupled with a recommended exercise program XXXXX[.]

B. XXXXX (Product B)

1. Product B is a XXXXX vitamin/mineral supplement bar (XXXXX bars per box).

2. Product B is manufactured by XXXXX. of XXXXX. and imported into Canada.

3. Product B has been issued a Drug Identification Number (XXXXX).

4. The label for Product B identifies the various ingredients as either Medicinal Ingredients or as Non-Medicinal Ingredients.

5. According to the product label, the recommended adult dose is XXXXX daily for therapeutic use only.

6. XXXXX Product B is available in various flavours including XXXXX (sample provided).

7. The non-medicinal ingredients of the XXXXX bar are: Corn Syrup, XXXXX high fructose corn syrup, XXXXX, Milk Chocolate Chips, Dutch Cocoa, natural and artificial flavours, pantothenic acid, and copper.

C. XXXXX (Product C)

1. Product C is a XXXXX high protein bar (XXXXX bars per box).

2. Product C is manufactured by XXXXX. and imported into Canada

3. Product C is manufactured in a variety of flavours including Peanut Butter (sample provided).

4. The ingredients of the Product C sample provided are: Protein blend, chocolate flavoured coating, glycerin, maltitol, peanut flour, natural and artificial flavor, crystalline fructose, salt and potassium sorbate.

Ruling Requested

Are supplies of the above-described products zero-rated pursuant to section 165 of the Excise Tax Act (ETA)?

Ruling Given

Based on the facts set out above, we rule that:

Supplies of Product A, B and C are taxable at 7% GST (or 15% if made in a province participating in the Harmonized Sales Tax [HST]) 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% 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. It is the CCRA's view that an average consumer would generally accept that a product in bar format was food.

Therefore, our review of the material submitted on Product B and Product C leads us to conclude that they are taxable at 7% GST (or 15% HST, as applicable) because they are excluded from zero-rating pursuant to paragraph 1(e) of Part III.

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.

These 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.

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 Product A:

•   Identification as a supplement or dietary supplement. XXXXX

•   Claims that the product has a therapeutic or preventive effect, enhances mental or physical performance, or enhances physique with emphasis on particular nutrient(s) prominently displayed on the label. The XXXXX for Product A links the use of Product A (with an exercise program) to replacing unwanted fat with lean, toned muscle and the XXXXX Product A's exclusive protein ingredient to building lean body mass and carbohydrates to replenishing muscle glycogen;

•   A listing of active or medicinal ingredients separate from those components considered non-active or non-medicinal; Product A identifies various ingredients as either medicinal or non-medicinal ingredients;

•   Restrictions related to the amount to be consumed; Product A is recommended for therapeutic use only with a recommended adult dose of XXXXX XXXXX daily.

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