17 May 2002 GST/HST Interpretation 32168 - Whey Protein Powders

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 supply of whey protein powders.

Interpretation Requested

Whey protein powders (all flavours) are taxable supplies at which tax rate?

Interpretation Given

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.

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.

As a result of this approach, individual preferences for, or dislikes of, certain products would not alter the general perception that a product is, or is not, a food or a beverage. 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.

Consumers usually consume food for enjoyment or to allay hunger, while beverages are usually consumed for enjoyment or to quench thirst. Most products which the average consumer would consider to be food or beverages have some nutritive value and today's more health conscious consumers may select and consume certain products not only to allay hunger, for enjoyment or to quench thirst but also for the particular nutritive value that the product offers. On the other end of the spectrum, some products that the average consumer may consider to be food or beverages may have little or no nutritive value. Some terms used to describe such products include "fun food", "junk food" or "empty calories". Nevertheless, in general, 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.

Products that are labelled 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. Rather, these products are represented as being for another purpose.

Furthermore, the CCRA considers a product to be an ingredient if an average consumer would recognize the product as an ingredient in food or a beverage. Thus, it is not the views of individuals or persons with special dietary concerns or requirements that will determine whether a product would be considered to be an ingredient.

Generally, 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. 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.

As with food and beverages, it is also recognized that some products that would be considered to be ingredients by an average consumer have no nutritive value. It is also recognized that consumers may select and add certain products to mix with or include as part of their preparation of food and beverages for the particular nutritive value that the product offers. However, it is the CCRA's view 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.

In addition, 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. For example, granulated or powdered fibre marketed for its beneficial effects to the digestive system is normally added to a glass (e.g., eight oz.) of juice, milk, or water as a means of consuming it. Nevertheless, in this instance, fibre is not an ingredient to be mixed with, or used in the preparation of, a beverage. Alternatively, fruit punch crystals are mixed with water to form a liquid that would commonly be regarded by an average consumer as a "beverage" since consumers would acknowledge that the fruit punch is usually consumed to quench thirst or for enjoyment.

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 may apply to whey protein powders:

•   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. (Note that this factor does not apply to products that are labelled in accordance with the Food and Drugs Act as "nutritional supplements".)

•   Products that make claims that the product has a therapeutic or preventative effect, enhances mental or physical performance, enhances physique or weight loss are considered to be consumed for that purpose and not 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;

•   Product names or pictorial representations on the labels that would lead a consumer to conclude that the principal purpose of consuming the product is for a therapeutic or preventative, enhanced performance, enhanced physique or weight loss indicate that the product is not consumed as a food, beverage or ingredient;

•   Products that have a restricted consumption recommendation, consumed with specific frequencies, quantities or dosages would not be considered to be a food, beverage or ingredient;

•   Warnings on the product label as to who should not consume the product indicate that the product is not one that an average consumer would normally consider to be a food, beverage of ingredient;

•   Products that are placed amongst non-prescription drugs or cosmetics and not with commonly recognized food, beverage or ingredients in health food stores, pharmacies or other retail outlets are not marketed as a food, beverage or ingredient;

•   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 purpose other than as a food, beverage or ingredient;

•   As well, if the product is compared to other products that are not considered a food, beverage or ingredient, this indicates that the product is to be consumed for a likewise purpose.

Whey protein powders that are labelled or marketed in a manner described above are taxable at 7% (15% in participating provinces) pursuant to section 165 of the ETA.

The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the Excise Tax Act, 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 Canada Customs and Revenue Agency 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) 952-9218.

Yours truly,

Kevin W. Smith
Goods Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate