16 May 2002 GST/HST Ruling 40097 - Application of the GST/HST to Individually Wrapped Granola Bars Sold as a Breakfast Cereal

Dear XXXXX

Thank you for your letter of April 11, 2002, with attachments, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the tax status of the product XXXXX (The Product).

Statement of Facts

1. The label of The Product includes the phrase: XXXXX

2. That is, each Product serving has the nutrition of one XXXXX, but in a convenient bar format.

3. Each bar contains approximately XXXXX of large flake oats.

4. The main ingredient is XXXXX. The Product XXXXX.

5. Flavours include: "XXXXX".

6. The Product will be packed and sold in XXXXX boxes, containing XXXXX, individually wrapped, bars.

7. The Product will be shelved in the same aisle and section as other XXXXX[.]

Ruling Requested

What is the tax status of The Product?

Ruling Given

Based on the facts set out above, we rule that The Product is taxable at 7%, (or 15% as applicable) pursuant to section 165 of 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.

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 Excise Tax Act ("the Act").

Section 1 of Part III of Schedule VI to the Act zero-rates supplies of food or beverages for human consumption ("basic groceries") and sweetening agents, seasonings and other ingredients mixed with or used in the preparation of such food or beverages, unless one of the exclusions set out in paragraphs 1(a) through 1(r) applies.

In accordance with paragraph 1(h) of Part III of Schedule VI of the Act, the following products are taxable at 7% (or 15% if applicable):

"granola products, but not including any product that is sold primarily as a breakfast cereal."

Therefore, a granola product is excepted from the exclusion in paragraph 1(h) and remains zero-rated if it is sold primarily as a breakfast cereal.

The expression "sold as a breakfast cereal" does not mean the same as "sold as an alternative to breakfast cereal". Furthermore, the ordinary and common meaning of the expression "breakfast cereal" is a product that is labelled as cereal to which you prepare by adding milk or water, and which is normally eaten at breakfast.

The Product is pressed into a bar and is labelled XXXXX. Furthermore, The XXXXX that the bar can be eaten other than by preparing by adding milk or water.

Therefore, The Product is not considered to be sold primarily as a breakfast cereal and falls within paragraph 1(h).

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 Operations & Border Issues Division
Excise and GST/HST Rulings Directorate