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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
XXXXXAttention: XXXXX
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Case Number: 38496July 10, 2002
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Subject:
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GST/HST APPLICATION RULING
Liquid and Bar Supplements
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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:
1. XXXXX (Product A)
• Product A is a XXXXX protein drink packaged in individual XXXXX containers.
• Product A is manufactured by XXXXX. and distributed exclusively in Canada by XXXXX.
• Product A label advertises that it has XXXXX of protein in each XXXXX serving.
• The flavours of Product A include; XXXXX
• The label of Product A has a notice that states: XXXXX
• The Product A label also states: XXXXX
• XXXXX XXXXX
2. XXXXX (Product B)
• Product B is labelled as a XXXXX.
• Product B is packaged in individual XXXXX containers.
• Product B is manufactured by XXXXX. and distributed exclusively in Canada by XXXXX[.]
• Product B label advertises that it has XXXXX of protein including quality ion-exchanged whey.
• The flavours of Product B are: XXXXX[.]
• The label of Product B states: XXXXX XXXXX[.]
3. XXXXX (Product C)
• Product C is a XXXXX nutritional supplement (in accordance with the Canadian Food Inspection Agency (CFIA) (Vis-à-vis the Canadian Food and Drugs Act and Regulations) requirements) packaged in XXXXX containers.
• Product C is manufactured by XXXXX. and distributed exclusively in Canada by XXXXX[.]
• The flavours of Product C are: XXXXX[.]
4. XXXXX (Product D)
• Product D is a XXXXX protein bar.
• Product D is manufactured by XXXXX. and distributed exclusively in Canada by XXXXX[.]
• Product D is available in XXXXX flavours.
• All of the flavours of Product D are either chocolate-coated or have a yogurt-coating.
• Product D is sweetened with maltitol and sucralose.
5. XXXXX (Product E)
• Product E is a XXXXX bar labelled as a nutritional supplement in accordance with the CFIA requirements.
• Product E is manufactured by XXXXX. and distributed exclusively in Canada by XXXXX.
• Product E is available in XXXXX flavours.
6. XXXXX (Product F)
Product F is a XXXXX bar labelled as a nutritional supplement in accordance with the CFIA requirements.
Product F is manufactured by XXXXX. and distributed exclusively in Canada by XXXXX Product F is available in XXXXX flavours.
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:
1. Product D is taxable at 7% GST (or 15% if made in a province participating in the Harmonized Sales Tax [HST]) pursuant to paragraph 1(e) of Part III of Schedule VI to the ETA.
2. Product C, Product E and Product F are zero-rated (taxable at 0%) supplies pursuant to section 1 of Part III of Schedule VI to the ETA.
3. Product A and Product B 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
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 Excise Tax Act (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. 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.
Our review of the material submitted on Product D leads us to conclude that it is taxable at 7% GST (or 15% HST, as applicable) because it is excluded from zero-rating pursuant to paragraph 1(e) of Part III.
It is our view that products that qualify and are labelled as "nutritional supplements" or "meal replacements" pursuant to the Food and Drugs Act 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. Therefore Product C, E and F are zero-rated supplies.
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 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.
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 and Product B:
• If a product identifies itself as a 'supplement', 'dietary supplement', 'food supplement' or similar terminology (not including products labelled as "nutritional supplements" meeting the requirements of the Food & Drugs Act and Regulations), 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. Product A and Product B identify the product as a food supplement.
• 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. Product A emphasizes the protein content of the product and the benefits of consuming Product A to muscle mass, body fat and muscle recovery. Product B also emphasizes the protein content of the product and the benefits of pre and post-workout consumption of Product B on transforming physique.
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
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