6 May 2002 GST/HST Ruling 30825 - Tax Status of Bars

Dear XXXXX:

This is in reply to your letter of March 23, 2000, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the XXXXX XXXXX bars (bar). Your inquiry was originally sent to our XXXXX Tax Services office, but was subsequently forwarded to our office for direct reply. Our comments are set out below.

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

Statement of Facts

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

1. You are the customs broker for the XXXXX, which imports the bar into Canada, from the United States.

2. The bar qualifies and is labelled as a meal replacement pursuant to the Food and Drugs Act and its Regulations (F&DA). Section B.01.001 of the Regulations to the F&DA 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.

3. The principal ingredients consist of significant amounts of sweeteners, corn syrup, whey powder and cocoa coating. It also contains other ingredients such as peanut flour, toasted soy pieces, etc.

4. The bar is available in a pack (containing XXXXX bars with a net weight of XXXXX grams) with each bar weighing XXXXX grams. Each bar contains XXXXX essential nutrients as a source of energy.

Ruling Requested

Is the bar zero-rated for GST/HST purposes under 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 bar is zero-rated under section 1 of Part III of Schedule VI to the ETA.

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 7% GST (or 15% when 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 paragraph 1(a) through 1(r) applies.

We have reviewed all information submitted on the bar. In particular, we note that the bar qualifies and is labelled as a meal replacement pursuant to the Regulations to the F&DA. It is the CCRA's position that products which qualify and are labelled as meal replacements pursuant to the Regulations to the F&DA are considered to be basic groceries pursuant to section 1 of Part III of Schedule VI to the ETA and, therefore, are zero-rated.

As stated in the facts, the bar is 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. Since the bar is a zero-rated basic grocery under Part III of Schedule VI, it is non-taxable on importation into Canada.

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