8 May 2002 GST/HST Ruling 39357 - Tax Status of Oral Electrolyte Maintenance Solution

Dear XXXXX:

This refers to your fax of November 27, 2001, which was originally sent to our XXXXX Tax Services Office, but has been transferred to our office in Ottawa for reply. You asked about the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to various products, one of which was XXXXX Oral Electrolyte Maintenance Solution ("the solution"). Our comments on the solution are set out below.

Statement of Facts

Our understanding of the facts is as follows:

1. This product is a specially formulated solution for infants and children to prevent dehydration due to diarrhea or vomiting. Dehydration is treated by using an electrolyte solution, which will maintain electrolyte balance and normal hydration. The solution contains appropriate and balanced amounts of electrolytes (here, sodium) and carbohydrates (here, sugar) to maintain fluid and electrolyte balance in children.

2. It is available as follows: in 1 litre (33.8 fl.oz.) bottles, in fruit, grape and bubble gum flavours, as well as unflavoured liquid for infants; in 8 fl. oz bottles, packaged in 4 packs, in cherry flavours; as XXXXX, 2.1 fl. oz. each, packaged 16 to a box in grape, cherry, orange and blue raspberry flavours.

3. The solution is purchased in pharmacies.

4. The website for the product provides a dosage chart for the administration of the solution. It suggests intakes based on the age and weight of the child, from two weeks to 6 years.

Ruling Requested

That the solution (either in liquid or frozen form) is zero-rated as basic groceries, pursuant to section 1 of Part III of Schedule VI to the Excise Tax Act ("ETA").

Ruling Given

Based on the facts set out above, we rule that the solution is taxable, at 7% GST (or, if applicable, 15% HST).

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 Act.

Section 1 of Part III of Schedule VI to the Act zero-rates supplies of 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. 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 preventive effects (e.g. to correct actual or perceived health problems) or to achieve specific beneficial effects related to performance or physique.

If a product's tax status is in doubt, the Canada Customs and Revenue Agency ("CCRA") will consider the manner in which the product is labelled, packaged, and marketed to determine its tax status. For example, information on a product's labelling or marketing material that it has a therapeutic or preventive effect would indicate that the product is not a beverage. In addition, a product that is labelled for restricted consumption (e.g. only a certain number of teaspoons are to be taken daily) or with specific frequencies or quantities of dosage would not be considered to be a food or a beverage.

We have reviewed information available on the solution, in particular, the website for it. It is our conclusion that the solution is not a food or a beverage. Rather, it has the attributes closer to that of a therapeutic product- it is consumed for its therapeutic effects of preventing dehydration, a dosage chart is available to consumers and it is sold only in pharmacies. We can also confirm that the solution is not a zero-rated drug pursuant to Part I of Schedule VI. Therefore, the solution is not zero-rated pursuant to Schedule VI of the ETA; rather, it is taxable at 7% (or 15%, as applicable.)

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 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 952-9585.

Yours truly,

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