16 May 2002 GST/HST Interpretation 8301 - Application of GST/HST to Products

Dear Sir/Madam:

This is in reply to faxes of XXXXX (with attachments) sent by XXXXX of your staff concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to various XXXXX products. Her inquiry was originally sent to our XXXXX XXXXX office but was subsequently transferred to us as the treatment of nutritional supplements was under review. Our attempts to contact you to request current labels of the products in question have been unsuccessful. Nevertheless, we are pleased to provide you with the following general information and ask that you submit current labels and product information should you wish to receive a binding ruling.

Interpretation Requested

XXXXX ("the company") offers a personal weight loss/management program to their clients. Clients can join the program at differing membership levels. All members are able to choose between menu options.

•   The XXXXX Menu option is oriented toward clients who are looking for:

-    a wide variety of foods provided for them

-    the structure of a planned meal

-    choosing the items they enjoy the most.

•   The XXXXX Menu option is oriented toward clients who are looking for:

-    quick, convenient and portable menus

-    instant nutrition via the convenience of items such as drinks, snack bars and soups

-    a dinner option of either company entrees or preparing their own food.

A variety of food products are offered for sale to members. You have asked about the tax status for GST/HST purposes of the products listed below. You also submitted labels for each of these products and each label indicates the product is a nutritional supplement.

•   XXXXX Chocolate Flavoured Drink Mix

•   XXXXX Strawberry Flavoured Drink Mix

•   XXXXX Wildberry Flavoured Drink Mix

•   XXXXX Hot Chocolate Drink Mix

•   XXXXX Smoothie

•   XXXXX Smoothie

•   XXXXX Cream of Chicken Soup Mix

•   XXXXX Bar Chocolate Flavoured

•   XXXXX Bar Chocolate Mocha Flavoured, and

•   XXXXX Bar Honey Nougat.

You wish to know whether the listed products are zero-rated pursuant to section 1 of Part III of Schedule VI to the Excise Tax Act ("ETA").

Interpretation Given

Taxable supplies of goods and services made in Canada are generally subject to tax at 7% (or 15% where the supplies are made in one of the provinces participating in the HST). However, "zero-rated" supplies of goods and services are subject to tax at 0%. A zero-rated supply is any supply included in Schedule VI to the ETA.

Section 1 of Part III of Schedule VI to the ETA zero-rates food and beverages for human consumption ("basic groceries") and many ingredients mixed with or used in the preparation of such food or beverages, unless one of the exceptions in paragraphs 1(a) through 1(r) applies.

Regarding the products listed above, we note that the exceptions described below may be applicable.

Paragraph 1(d) excludes from zero-rating non-carbonated fruit juice beverages or fruit flavoured beverages, other than milk based beverages, that contain less than 25% by volume of

(i) a natural fruit juice or combination of natural fruit juices, or

(ii) a natural fruit juice or combination of natural fruit juices that have been reconstituted into the natural state, or goods that, when added to water, produce a beverage included in the paragraph.

Paragraph 1(n) excludes from zero-rating supplies of single servings of beverages (other than unflavoured milk), pudding, flavoured gelatine, mousse, flavoured whipped dessert product, and any other products similar to pudding. There are three exceptions to this exclusion, any one of which will allow the product to remain zero-rated as a basic grocery (unless some other exclusion applies). These exceptions are:

(i) products prepared and prepackaged specially for consumption by babies,

(ii) products prepackaged by the manufacturer in multiples of single servings, or

(iii) individual cans, bottles or packages with a quantity that exceeds a single serving.

Paragraph 1(e) 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.

Products which qualify and are labelled as nutritional supplements pursuant to the Food & Drugs Act ("F&DA") and its Regulations are considered to be basic groceries pursuant to section 1 of Part III of Schedule VI to the ETA. Section B.01.001 of the Regulations to the F&DA define a nutritional supplement to mean a "food sold or represented as a supplement to a diet that may be inadequate in energy and essential nutrients". Nutritional supplements must contain 21 specified micronutrients (i.e. vitamins and minerals) within a range relative to their energy content. Therefore, company products that qualify and are labelled as nutritional supplements would be zero-rated pursuant to the ETA, notwithstanding the exceptions described above.

We note that you are located in the United States and assume that company products will be imported into Canada. Division III of the ETA provides that GST/HST is payable on dutiable goods (under the Customs Act) imported into Canada. Section 6 of Schedule VII to the ETA provides, in part, that goods included in Part III of Schedule VI (i.e. zero-rated basic groceries) are non-taxable importations. If company products are zero-rated pursuant to section 1 of Part III of Schedule VI to the ETA, they would not be taxable on importation into Canada.

The foregoing represent our general views with respect to the subject matter of your letter. Proposed amendments to the ETA, if enacted, could have an effect on the interpretation provided herein. These comments are not rulings and, in accordance with the guidelines set out in section 1.4 of Chapter 1 of the GST/HST Memoranda Series, do not bind the CCRA with respect to a particular situation.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-9585.

Yours truly,

Pauline Greenblatt
Goods Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

References