6 May 2002 GST/HST Ruling 32533 - Tax Treatment of Snack Bars

Dear XXXXX:

This is in reply to your letter of August 30, 2000, on the subject noted above. Your inquiry was initially sent to our XXXXX office, but was subsequently transferred to our office for direct reply. You asked about the application of the Goods and Services Tax ("GST")/Harmonized Sales Tax ("HST") to a number of different snack bars, some of which are labeled as meal replacements or nutritional supplements. Our comments are set out below.

Please accept our apologies for the delay in replying to you.

Statement of Facts

Our understanding of the facts of this case is as follows:

1. You are the operator of a health food store, in which you sell a number of different snack bars.

The bars are described in greater detail below.

Group 1 - Bars labeled as Meal Replacements

XXXXX, Hi-Protein Meal Replacement Bar, coconut flavour.

XXXXX, Protein Meal Replacement Sports Bar, white chocolate mousse flavour.

Group 2 - Bars labeled as Nutritional Supplements

XXXXX Energy Bar, malt-nut flavour.

XXXXX Bar, chocolate flavour.

XXXXX Bar, honey peanut and cranberry flavour.

XXXXX Bar, yogurt berry flavour.

Group 3 - All other Bars

•   XXXXX Next Level Protein Sports Bar, chocolate flavour. Ingredients include corn syrup, protein blend, calcium, chocolate coating, cocoa, high fructose corn syrup and cocoa powder.

•   XXXXX, peanut butter flavour. Ingredients include whey protein, chocolate coating, cocoa, and peanut flour.

•   XXXXX, Protein-Carbohydrate Energy Bar, chocolate malt flavour. Ingredients include biocytein (a protein synthesis), fructose, glucose, and cocoa.

•   XXXXX Protein-Carbohydrate Energy Bar, chocolate chip flavour. Ingredients include biocytein (a protein synthesis), fructose, glucose, chocolate chips and cocoa.

•   XXXXX Bar, peanut butter & chocolate flavour. Ingredients include corn syrup, chocolate coating, cocoa powder and peanuts.

•   XXXXX Crunch Bar, dutch chocolate flavour. Ingredients include corn syrup, raisins, cocoa powder, fructose corn syrup and beet sugar.

•   XXXXX Bar, chocolate coated mocha express flavour. Ingredients include biocytein (a protein synthesis), fructose, glucose, beet sugar and cocoa.

•   XXXXX Bar, chocolate almond coconut raisin flavour. Ingredients include raisins, almonds, coconut, milk chocolate.

•   XXXXX Energy Bar, chocolate truffle flavour. Ingredients include high fructose corn syrup, chocolate coating, oats, rice, cocoa and peanut butter.

•   XXXXX Protein Sports Bar, Butter Pecan flavour. Ingredients include gluco-amino, corn syrup, pecans, high fructose corn syrup.

•   XXXXX Bar, chocolate cappuccino flavour. Ingredients include fruit leather, whey protein, milk chocolate coating and coffee flavouring.

•   XXXXX Bar, fudge brownie flavour. Ingredients include a protein blend, corn syrup, high fructose corn syrup and cocoa.

•   XXXXX High Protein Bar, chocolate flavour. Ingredients include a protein blend, corn syrup, sugar, cocoa, and chocolate liquor.

•   XXXXX Bar, chocolate roasted peanut flavour. Ingredients include a protein blend, cocoa and brown rice syrup.

Rulings Requested

What is the tax status of the bars, described above.

Rulings Given

Based on the facts set out above, we rule as follows:

•   Bars included in Groups 1 and 2, being Meal Replacements and Nutritional Supplements, respectively, are zero-rated, pursuant to section 1 of Part III of Schedule VI to the Excise Tax Act ("ETA") and the administrative policy of the Canada Customs and Revenue Agency ("CCRA").

•   Bars included in Group 3 are taxable at 7% GST (or 15% HST, as applicable), pursuant to paragraph 1(e) of Part III of Schedule VI to the ETA.

These rulings are 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 these rulings 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 ETA, or to our interpretative policy; and that you have fully described all necessary facts and transactions for which you requested rulings.

Explanation

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 supplies of food or 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 set out in paragraphs 1(a) through 1(r) applies.

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.

It is the position of the CCRA that meal replacement products and nutritional supplement products are zero-rated as basic groceries. The CCRA has adopted the definitions, nutritional profiles and labeling specifications for these products as set out in the Regulations to the Food and Drugs Act ("F&DA"). Only the products which meet the nutritional and labeling requirements for meal replacements and nutritional supplements under the F&DA will be zero-rated as basic groceries under the ETA.

Section B.01.001 of the Regulations to the FDA define "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, which is also regulated.

Section B.01.001 of the Regulations to the FDA define a meal replacement to be "a formulated food that, by itself, can replace one or more daily meals". Further, meal replacements have specific caloric, fat content and vitamin and mineral requirements.

Because the bars in Group No. 1 and Group No. 2 qualify as and are labeled as meal replacement bars and nutritional supplement bars, respectively, under the Regulations to the FDA, they are zero-rated as basic groceries under the ETA.

Our review of the material submitted on the bars in Group No. 3 leads us to conclude that the bars in this group are taxable at 7% GST (or 15% HST, as applicable) because they are excluded from zero-rating pursuant to paragraph 1(e).

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