18 July 2002 GST/HST Ruling 41139 - Application of the GST/HST to Vitamin-fortified Dietary 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 XXXXX (the Product) manufactured by your client, XXXXX.

Statement of Facts

Our understanding of the facts, is as follows:

1. The Product is a fortified, XXXXX that is available in two types; vitamin-fortified (vitamins A, C and E) or XXXXX.

2. The Product is available in a variety of flavours including: XXXXX and XXXXX for the vitamin-fortified type and XXXXX and XXXXX for the XXXXX.

3. The Product has been issued a Drug Identification Number (DIN).

4. The Product separately identifies the ingredients as either active or non-medicinal. The active ingredient of the XXXXX Product is XXXXX XXXXX. The active ingredients of the vitamin-type Product are Beta-Carotene (a source of Vitamin A), Vitamin C, and Vitamin E (as dl-alpha-tocopheryl acetate).

5. According to the Product label, adults and children over XXXXX should XXXXX XXXXX daily as desired. The XXXXX Product package contains only XXXXX XXXXX[.]

6. XXXXX the Product is identified as a dietary supplement and marketed as follows:

XXXXX XXXXX XXXXX

Ruling Requested

The Product is a zero-rated supply pursuant to section 1 of Part III of Schedule VI to the Excise Tax Act (ETA).

Ruling Given

Supplies of the Product 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.

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 the general perception that a product was, or was not a food or beverage. Also, certain flavoured or sweetened products (e.g., sweetened, medicated throat lozenges) that have a pleasing taste may, nevertheless, not be regarded by the average consumer to be a food or beverage as they are consumed for their purported beneficial effects. Therefore, despite the fact that these products are pleasant tasting, they do not fall within the meaning of "food" for purposes of Part III of Schedule VI to the ETA.

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 the Product:

•   Products that are represented for a therapeutic or preventative use or to achieve specific beneficial effects relating to performance or physique are not considered to be basic groceries. The XXXXX Product emphasizes XXXXX content of the product and the benefits of consuming the Product to XXXXX. The vitamin-type Product emphasizes the vitamin A, C and E content on the label.

•   Often when a product is marketed as a dietary supplement, the label will list separately those components that are considered "active" (i.e., considered to contribute to the therapeutic effect) and "non-active" ingredients (i.e., those that do not contribute to the therapeutic effect). The Product separately lists ingredients as either active or non-medicinal.

•   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. The Product recommends that only adults and children over XXXXX should consume the Product. The Product has a recommended daily adult dose of XXXXX.

•   The presence of a Drug Identification Number, although not determinative in itself, is an indication that the Product is promoted and consumed for its beneficial effects on personal health. The Product has been issued a Drug Identification Number (DIN).

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