29 May 2002 GST/HST Ruling 39826 - Supply of Promotional CD with

Dear XXXXX

Thank you for your letter of March 26, 2002 (with attachments), concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the tax status of the supply XXXXX that also contains a promotional CD.

Statement of Facts

1. XXXXX that requires preparation by the consumer.

2. The promotional CD is a six song sampler that will feature XXXXX from a soon to be released CD. It has no suggested selling price (MSRP) and is not intended for retail sale. The regular CD will contain XXXXX and is expected to sell for XXXXX to XXXXX depending on the location of the store. Since the promotional CD has only XXXXX of the number of tracks, in your view its perceived value to the consumer is approximately XXXXX.

3. The CD will be packed and sold with XXXXX for a limited period. It will be packed inside the over wrap which binds the XXXXX-pack together. A picture was enclosed of the packaging.

4. The company is not increasing prices to the retailer as a result of the inclusion of the CD, and is suggesting that the retailer maintains the suggested regular and feature price to the consumer for the duration of the promotional period.

5. It XXXXX by temporarily including a CD with these XXXXX-packs.

6. XXXXX is in the business of selling food for human consumption, and does not ordinarily sell or distribute non-food items, except in connection with promotional activities.

In a subsequent telephone conversation of XXXXX, you indicated:

7. The same UPC codes that are used for XXXXX packs which do not contain the CD will continue to be used for the XXXXX packs which do include the CD.

8. The XXXXX-packs with CDs are expected to have the same placement in retail outlets as XXXXX-packs that do not contain the CD.

9. XXXXX-packs with and without the CD will be available at the same time so that clients will have a choice.

Ruling Requested

What is the tax status of the supply of a XXXXX with a promotional CD?

Ruling Given

Based on the facts set out above, we rule that a XXXXX containing the promotional CD is zero-rated pursuant to section 1 of Part III of Schedule VI to the Excise Tax 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.

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 Operation and Border Issues Division
Excise and GST/HST Rulings Directorate