12 March 2002 GST/HST Ruling 31526 - Application of Tax to and

Dear Sir:

Thank you for your letter of May 26, 2000 concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the importation of XXXXX

Statement of Facts

Our understanding of the facts is as follows:

1. XXXXX is the importer of XXXXX powder mixtures which are imported in containers of XXXXX and XXXXX grams respectively.

XXXXX

2. XXXXX - there are approximately 34 different ingredients that comprise XXXXX, of which the principal ingredients per tablespoon are XXXXX.

3. The following directions for use appear on the XXXXX label:

Adults, blend or stir one (1) heaping tablespoon (approx. 9 grams) with six (6) ounces of water or juice, preferably away from meals

4. A warning to "Keep out of reach of children" is also present on the label.

5. A similar warning is also posted on the XXXXX Web site; this site provides information on a number of XXXXX products including XXXXX:

Warning: Accidental overdose of iron-containing products is a leading cause of fatal poisoning in children under 6. Keep this product out of reach of children. In case of accidental overdose, call a doctor or poison control center immediately.

XXXXX is also available in tablet form.

XXXXX

8. The sole ingredient in XXXXX is XXXXX.

9. The information on the label set out following directions for use:

Adults, take one (1) level tablespoonful (approx. 5.8 grams) daily with a minimum of 8 oz juice or other liquid preferably in between meals.

9. A warning to "Keep out of reach of children" is present on the label.

11. The following notice is posted on the XXXXX Web site in the product information section for XXXXX:

NOTICE: XXXXX should be eaten with at least a full glass of liquid. Eating XXXXX without a full glass of liquid may cause choking. Do not eat this product if you have difficulty swallowing.

10. The following statement is also posted on the Web site in the XXXXX product information section:

If you are pregnant, nursing, taking any medication or have a medical condition, please consult your healthcare practitioner before taking any dietary supplement.

XXXXX is also available in capsule form XXXXX.

Ruling Requested

XXXXX are zero-rated under the general provision of section 1 of Part III of Schedule VI to the Excise Tax Act (ETA) and as such XXXXX is not required to account for tax on the importation of XXXXX and XXXXX.

Ruling Given

Based on the facts set out above, we rule that XXXXX are taxable at 7% (or 15% as applicable) pursuant to section 165 of the ETA. XXXXX is required to account for tax on the importation of both products into Canada. XXXXX will be required to charge tax on the supply of the products in Canada unless it is a small supplier (i.e., total (gross) worldwide taxable revenues, including the worldwide revenues of all its associates do not exceed $30,000 annually).

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

Pursuant to section 1 of Part III of Schedule VI to the ETA, supplies 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) are zero-rated unless otherwise indicated.

The terms "food" and "beverage" are not defined in the ETA. The CCRA position is that these terms are to be construed in accordance with their ordinary meaning. That is, "food" is a product consumed for enjoyment or to allay hunger, and a "beverage" is a product consumed for enjoyment or to quench thirst.

In order for a product to be considered an ingredient mixed with or used in the preparation of food or beverage, the purpose of consuming the resulting food or beverage to which the product is added, must be to allay hunger, quench thirst, or for enjoyment.

To determine whether the purpose of a product is to quench thirst, allay hunger, or for enjoyment, and not for its purported beneficial effects (e.g., gastrointestinal effect), the CCRA will consider the information on the label, the packaging and the marketing of that product.

Generally, if a product has restrictions on its label related to the amount to be consumed (e.g., 1 tsp.) or specifies frequencies or quantities of dosage, this is an indication that the product is not a food, beverage or an ingredient. In this instance, both XXXXX have directions indicating the recommended dosage.

XXXXX Adults, blend or stir one (1) heaping tablespoon (approx. 9 grams) with six (6) ounces of water or juice, preferably away from meals

XXXXX Adults, take one (1) level tablespoonful (approx. 5.8 grams) daily with a minimum of 8 oz juice or other liquid preferably in between meals.

The direction on the label also makes recommendations concerning when the product should be taken. It is suggested that XXXXX be consumed away from meals and XXXXX be consumed in between meals. Recommendations of this nature are not normally required for products that are food, beverages or ingredients.

Warnings on a product label concerning the consumption of that product (e.g., product not to be consumed by pregnant women or children) is also indicative that the product is not food, a beverage or an ingredient.

In the case of XXXXX, there is a warning on the label which indicates the product should be kept out of the reach of children. That warning is also repeated on the product site, and accompanied with a statement that "accidental overdose of iron-containing products is a leading cause of fatal poisoning in children." A warning to "keep out of reach of children" is also on the XXXXX label.

Both XXXXX an XXXXX are available in powder and tablet/capsule form. The fact that a product is available in pill, tablet or capsule form is an indicator that the product is not food, a beverage or an ingredient. The availability of a product in a form that is not normally associated with food, beverages or ingredients suggest that the consumer may be indifferent to the means of ingestion and thus the motive for consumption is other than to allay a hunger, quench thirst or enjoyment.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-8530.

Yours truly,

Dwayne Moore
Goods Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate