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Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
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Case Number: 42430
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Subject:
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GST/HST APPLICATION RULING
Application of GST/HST to XXXXX
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Dear XXXXX
Thank you for your letter XXXXX (with attachments), concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the facts described below.
Statement of Facts
Our understanding of the facts is as follows:
1. XXXXX produces the following products (the "Products"):
XXXXX
2. Each of the Products are sold as powdered XXXXX drink mixes, which are sold XXXXX, in quantities exceeding a single serving.
3. XXXXX:
a. This product is in powdered form and contains natural XXXXX juice crystals XXXXX;
b. This product is marketed as having one of the highest sources of natural XXXXX;
c. This product contains instructions that it should be taken XXXXX per day. It may be mixed with water, juice XXXXX;
d. This product contains the recommendation that it should XXXXX[;]
e. This product purports to deliver XXXXX;
f. This product contains instructions that it should not be taken with XXXXX;
g. This product is marketed as helping to maintain XXXXX;
h. This product is marketed as a XXXXX and XXXXX;
i. This product is marketed as XXXXX nutrition XXXXX.
4. XXXXX:
a. This product is in powdered form;
b. This product is made from XXXXX XXXXX;
c. This product contains instructions that it should be taken XXXXX a day;
d. This product contains information that it can XXXXX;
e. This product purports to deliver the XXXXX;
f. This product contains the warning that it should not be taken with XXXXX[;]
g. This product contains XXXXX XXXXX;
h. This product is marketed as helping to maintain XXXXX;
i. This product is marketed as a product that provides a cleansing effect.
5. XXXXX:
a. This product is in powdered form;
b. This product is a XXXXX that captures all the nutrients in XXXXX;
c. XXXXX contains XXXXX amino acids, including XXXXX;
d. This product contains the instructions that it should be taken XXXXX XXXXX a day by adults;
e. This product contains the instructions that it should be taken XXXXX;
f. This product contains the instructions XXXXX XXXXX per day;
g. This product contains the instructions that XXXXX as many as XXXXX per day;
h. This product purports to deliver the XXXXX[;]
i. This product contains the XXXXX;
j. This product is marketed as helping to maintain XXXXX;
k. This product is marketed as helping to maintain a healthy immune system;
l. This product is marketed as a product that provides increased energy.
6. XXXXX:
a. This product is in powdered form;
b. This product is a XXXXX that captures all the nutrients in XXXXX;
c. XXXXX contains XXXXX amino acids, including XXXXX;
d. This product contains the instructions that it should be taken XXXXX XXXXX per day by adults;
e. This product contains the instructions that it should be taken XXXXX;
f. This product contains the instructions that XXXXX per day;
g. This product contains the instructions that XXXXX as many as XXXXX per day;
h. This product purports to deliver XXXXX[;]
i. This product is marketed as helping to maintain XXXXX[;]
j. This product is marketed as helping to maintain a healthy immune system;
k. This product is marketed as a product that provides increased energy.
Ruling Requested
You have requested a ruling concerning the application of GST/HST to the supply of the above-mentioned Products.
Ruling Given
Based on the facts set out above, we rule the following:
1. XXXXX do not fall under the zero-rating provision in section 1 of Part III of Schedule VI to the Excise Tax Act ("ETA") and the supply of these products is taxable at a rate of 7% GST or 15% HST as applicable pursuant to subsection 165(1) of the ETA.
Please be advised that this ruling supersedes the ruling provided XXXXX and is effective 30 days from the date of this letter. This effective date allows for changes to system requirements to comply with the requirement for collecting, accounting for, and remitting tax.
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
Generally, every recipient of a taxable supply made in Canada shall pay to Her Majesty in right of Canada tax in respect of the supply calculated at the GST rate of 7% (or HST rate of 15%, as applicable) on the value of the consideration for the supply. Where, however, a supply is a zero-rated supply, the tax rate in respect of that supply is 0%.
The supply of basic groceries, which includes the majority of supplies of food and beverages marketed for human consumption (including sweetening agents, seasonings and other ingredients to be mixed with or used in the preparation of such food or beverages), is zero-rated pursuant to section 1 of Part III of Schedule VI to the Excise Tax Act (ETA).
The term 'beverage' is not defined in the ETA. The CCRA position is that this term is to be construed according to its ordinary meaning. That is, a beverage is a good that an average consumer would recognize and purchase as a beverage in the ordinary course of buying basic groceries. Products that meet special dietary needs of certain segments of the population such as those with restricted or special purpose diets, high performance athletes and dieters may not necessarily be viewed as a beverage.
Consumers usually consume beverages for enjoyment or to quench thirst. Therefore, the CCRA generally considers 'beverages' as goods consumed to sustain or maintain life, to allay thirst, or for enjoyment rather than for therapeutic or preventative effects 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 preventative effects, or enhancing performance or physique, are not considered to be products that an average consumer would ordinarily purchase in the course of buying beverages. Rather, these products are represented as being for another purpose and so are not considered to be basic groceries.
There are a number of factors that the CCRA considers in determining whether a product would be considered to be a food, beverage or ingredient.
Products that emphasize the purity or superior quality of a particular nutrient and relate that nutrient to a therapeutic or beneficial health effect or enhanced mental or physical performance are consumed for that purpose and not as a food, beverage or ingredient.
Directions for use or restrictions relating to the amount to be consumed are generally not characteristics of products that the average consumer would consider to be a food, beverage or ingredient. Such directions or restrictions indicate that the product is being consumed for a purpose other than as a food, beverage or ingredient.
The Products have been marketed as products that offer therapeutic or preventative effects and in addition to that, have very detailed suggested use instructions, warnings and restrictions. According to P-240: Application of GST/HST to Products Commonly Described as "Dietary Supplements", such marketing, instructions, warnings, and restrictions are contributing factors indicating that the Products are dietary supplements and not beverages.
The Products all claim to XXXXX. In addition, the information brochures accompanying the Products all suggest that the Products XXXXX[.] This suggests that the Products are to be consumed for their beneficial effects and to affect a particular bodily process. In fact, P-240 clearly states that, "products would be considered to be food or beverages if they would be consumed by an average consumer when food or beverages are typically consumed, such as at mealtimes or for a snack." Since it is recommended that these products be taken at a time other than mealtime, when beverages are typically consumed, it is further evidence that the Products are not beverages at all.
In addition to the above health benefits that all of the Products claim, each individual product also claims to have particular benefits, instructions and restrictions not shared by some or all of the others:
1. XXXXX This product has instructions XXXXX. This is specifically mentioned as a factor indicating that a product is in fact not a beverage pursuant to P-240.
XXXXX instructions for use also clearly recommends a serving of XXXXX per day, and further cautions that it should not be taken with XXXXX. These recommendations and cautions are again factors suggesting that the product is indeed not a beverage pursuant to P-240.
Finally, XXXXX claims to be a powerful antioxidant that prevents XXXXX and is XXXXX nutrition XXXXX. The marketing of this product clearly indicates that there are therapeutic and preventative benefits to taking XXXXX.
2. XXXXX The instructions for use of this product indicate that XXXXX should be taken XXXXX a day. It cautions that it should not be taken with XXXXX, XXXXX. Such cautions, restrictions and warnings are specifically mentioned in P-240 as factors indicating that a product is not a beverage.
XXXXX also claims to provide a cleansing effect.
3. XXXXX has specific recommended servings depending on whether you are a child, a teen, an adult or an athlete. There is also a warning XXXXX. Once again, such recommendations and warnings are indications that the product is not a beverage pursuant to P-240.
XXXXX also claims to help maintain a healthy immune system and provides increased energy.
4. XXXXX has specific recommended servings depending on whether you are a child, a teen, an adult or an athlete.
XXXXX also claims to help maintain a healthy immune system and provides increased energy.
Our analysis indicates that the Products are intended to be used for their therapeutic and health benefits and as such fall under P-240. Although the Products can be mixed with fluids and consumed by drinking, it is our position that the resultant blend is not a beverage. This is supported by the way the Products have been labelled and marketed.
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,
Cliff Lee
Goods Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate
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