28 July 2003 GST/HST Interpretation 44935 - Application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the Sale of Certain Dietary Supplements

Dear Sir/Madam:

Thank you for your letter XXXXX (with attachments) concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the sale of certain products sold under the brand name XXXXX.

In your letter, you state that you started buying XXXXX without paying GST. You subsequently began buying XXXXX and were required to pay GST. According to the manager of the health food store at which you purchased the products, they contain the same formula and are made by the same manufacturer.

Interpretation Requested

You have asked us to confirm the tax status of XXXXX and XXXXX.

Interpretation Given

Based on the information provided, we confirm that XXXXX is taxable at 7 per cent (GST) or 15 per cent (HST) and XXXXX is zero-rated (i.e., taxable at zero per cent).

Section 1 of Part III of Schedule VI to the Excise Tax Act (the "ETA") zero-rates supplies of basic groceries. This includes supplies of "food" and "beverages" marketed for human consumption, as well as "sweetening agents, seasonings and other ingredients to be mixed with or used in the preparation of such food or beverages". Certain foods and beverages (e.g., candies, chips, carbonated beverages, etc.) are excluded from zero-rating in paragraphs 1(a) to (r).

However, not all products that can be ingested are considered to be a food or beverage. The words "food" and "beverages" are not defined in the ETA. Policy Statement P-240, Application of GST/HST to Products Commonly Described as Dietary Supplements (a copy of which is enclosed), addresses the question of whether products commonly described as "dietary supplements" are zero-rated as foods or beverages. Consumers usually consume food for enjoyment or to allay hunger, while beverages are usually consumed for enjoyment or to quench thirst. 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 preventative effects (e.g., to correct actual or perceived health problems) or to achieve specific beneficial effects related to performance or physique. Products that are labelled or marketed as products to be consumed to facilitate the intake of certain ingredients (nutritive or otherwise) or which place an emphasis on claims relating to the benefits of the product, for example, therapeutic or preventive effects, or enhancing performance or physique, are not considered to be products that an average consumer would ordinarily purchase in the course of buying food or beverages (e.g., products in pill, tablet, or capsule format). The policy looks to a product's labelling, packaging/format and marketing to determine whether it is a dietary supplement.

The term "ingredients" is also not defined in the ETA. A product is an ingredient if it adds to the flavour, texture or appearance of the final product. Furthermore, the final product itself must be a food or beverage. A product that is marketed for its beneficial effects, and that is added to food or water simply as a means of consuming it, is not a zero-rated ingredient.

The policy does not apply to meal replacements and nutritional supplements (as defined in regulations to the Food and Drugs Act). XXXXX is neither a meal replacement nor a nutritional supplement.

With respect to XXXXX, it is supplied in liquid form and in order to be zero-rated, it must either be a beverage or an ingredient to be mixed with or used in the preparation of a beverage. The label on the bottle describes XXXXX as a XXXXX and an XXXXX. This clearly indicates that the purpose of the product is to remedy an ailment or deficiency in a person's diet. The XXXXX web site makes health claims for the product, stating that XXXXX[.] In addition, the usage on the label states that the recommended dosage is XXXXX or as directed by a healthcare practitioner or nutrition centre. It is not to be taken during pregnancy, by nursing mothers or children under 6 years of age. Although the usage indicates that the dosage can be taken with juice, it appears that this is to make the product more palatable or to mask the taste, and therefore, not intended to be drunk for enjoyment or to quench thirst.

Based on our review of the product, we do not consider XXXXX to be either a beverage or an ingredient to be mixed with or used in the preparation of a beverage, and therefore it is taxable at 7 per cent (GST) or 15 per cent (HST).

With respect to XXXXX, it is true that the ingredients are almost identical and the product is promoted as having the same benefits as XXXXX. However, the distinguishing feature of XXXXX is the format in which it is sold. It comes in powder form and is prepared by decoction (i.e., the powder is added to water and boiled). The product is labelled an XXXXX. It is currently our position that supplies of all products that are characterized as tea, regardless of flavour or ingredients (i.e., whether real tea, herbal tea, fruit flavoured tea, etc.) are zero-rated. A product that advertises or labels itself as a tea is zero-rated.

Please note that our administrative position concerning the application of GST/HST to tea and similar products is under review and may be subject to change in the future.

The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the Excise Tax Act, if enacted, could have an effect on the interpretation provided herein. These comments are not rulings and, in accordance with the guidelines set out in section 1.4 of Chapter 1 of the GST/HST Memoranda Series, do not bind the Canada Customs and Revenue Agency with respect to a particular situation.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-7909.

Yours truly,

Gunar Ozols
Goods Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate