6 June 2002 GST/HST Ruling 35844 - Application of the GST/HST to Strawberry-flavoured Nutritional 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 products described below.

Statement of Facts

Our understanding of the facts, is as follows:

XXXXX [Product A]

1. Product A is a strawberry-flavoured liquid manufactured by XXXXX. (the manufacturer) of XXXXX[.]

2. XXXXX exclusively distributes Product A in Canada.

3. Product A is labelled as a "Nutritional Supplement".

4. XXXXX Product A provides the body with high-quality protein and carbohydrates as well as a wide array of vitamins, minerals and other important micronutrients vitally important to your efforts to build a better body.

XXXXX [Product B]

1. Product B is a strawberry-flavoured whey protein powder manufactured by XXXXX (the manufacturer) of XXXXX[.]

2. The Product B label states that it provides XXXXX and that the product is XXXXX.

3. The product has directions for use as follows: Add 1 scoop to 150-200 ml cup of liquid, sauce or mix. Stir until dispersed, then drink immediately. Note the extra calories provided by milk, yogurt etc. You can add more or less liquid to meet your desired taste.

4. XXXXX XXXXX is as follows:

XXXXX

Ruling Requested

Are supplies of Product A and Product B zero-rated pursuant to section 165 of the Excise Tax Act (ETA)?

Ruling Given

Based upon the facts set out above, we rule that Product A as a nutritional supplement is zero-rated. We also rule that Product B is taxable at 7% (or 15% as applicable) pursuant to section 165 of the ETA. This supercedes our ruling of XXXXX concerning Product B.

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% 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.

It should be noted that products which 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.

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.

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 Product A and B:

•   If a product identifies itself as a 'supplement', 'dietary supplement', 'food supplement' or similar terminology, 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.

XXXXX Product A is labelled as a 'nutritional supplement'. As noted above, products that meet the 'nutritional supplement' labelling and nutritional requirements of the Food and Drugs Act are zero-rated.

•   Product advertising, whether through print or electronic media, that includes a claim related to purported beneficial effects (as mentioned above) indicates that the product is intended to be consumed for purposes other than as a food, beverage or ingredient.

Product B XXXXX which indicates that the product is intended to be consumed for a purpose other than as a food, beverage or ingredient.

•   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 performance or physique are not considered to be consumed as a food, beverage or ingredient.

In addition to the purported beneficial effects that the manufacturer of Product B makes, the manufacturer also states that the product is XXXXX[.] 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