11 July 2002 GST/HST Ruling 41162 - Application of the GST/HST to 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 the tax status of XXXXX (The Product) which will be imported from the United States for resale to retail outlets.

Statement of Facts

Our understanding of the facts, is as follows:

1. The main ingredients found in The Product are XXXXX monohydrate along with amino acids (XXXXX).

2. The Product is imported in powder form in two different size plastic containers. The two sizes are XXXXX and XXXXX with servings per container of XXXXX and XXXXX respectively.

3. The product is labelled as a dietary supplement and the recommended use is to mix with water, but alternatively with juice.

4. XXXXX."

Ruling Requested

What is the tax status of The Product?

Ruling Given

Based on the facts set out above, we rule that The Product is taxable at the GST rate of 7% or the HST rate of 15% in participating provinces pursuant to section 165 of the Excise Tax Act (the Act).

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%.

The supply of basic groceries, which includes the majority of supplies of food and beverages marketed 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 Part III of Schedule VI to the Act.

The terms 'food' and 'beverage' are not defined in the Act. The Canada Customs and Revenue Agency (CCRA) position is that these terms are to be construed according to their ordinary meaning. That is, a food or a beverage is a good that an average consumer would recognize and purchase as a food or beverage in the ordinary course of buying basic groceries. 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 a food or a beverage.

Consumers usually consume food for enjoyment or to allay hunger, while beverages are usually consumed for enjoyment or to quench thirst. Therefore, the CCRA generally considers 'food' and 'beverages' as goods consumed to sustain or maintain life, to allay hunger or thirst, or for enjoyment rather than for therapeutic or preventative effects or to achieve specific beneficial effects related to performance or physique.

Products that are labelled or marketed as products to be consumed to facilitate their 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.

Additionally, 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.

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.

A factor in determining whether a product is a food, beverage or ingredient is if the product identifies itself as a 'supplement', 'dietary supplement', 'food supplement' or similar terminology. (Note that this factor does not apply to products that are labelled in accordance with the Food and Drugs Act as "nutritional supplements".) Such identification may be 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. In this case, The Product identifies itself as a "dietary supplement".

Products that emphasize the purity or superior quality of a particular nutrient and relate that nutrient to a therapeutic or beneficial health effect or enhanced mental or physical performance are consumed for that purpose and not as a food, beverage or ingredient. The Product links its consumption with enhanced physical performance, especially in relation to bodybuilding.

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 has directions of use or restrictions.

The label of The Product mentions the name "XXXXX" and the XXXXX which leads a consumer to conclude that the principal purpose of consuming the product is to enhance physique or to promote weight loss.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 954-5124.

Yours truly,

Gabrielle Nadeau
Goods Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

Encl.: