Please note that the following document, although correct at the time of issue, may not represent the current position of the Canada Revenue Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence du revenu du Canada.
GST/HST Rulings Directorate
Place de Ville, Tower A, 11th floor
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 225972
Business Number: […]
Dear [Client]:
Subject: GST/HST RULING & INTERPRETATION
[…][Whether the Product is a zero-rated Basic Grocery item]
Thank you for your letter of [mm/dd/yyyy], concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to the supply of [various flavors of] […] (the Product).
The HST applies in the participating provinces at the following rates: 13% in Ontario; and 15% in New Brunswick, Newfoundland and Labrador, Nova Scotia and Prince Edward Island. The GST applies in the rest of Canada at the rate of 5%.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
STATEMENT OF FACTS
We understand the following:
1. […] (the Company) is a GST/HST registrant holding Business Number [...].
2. As per your submission, it is our understanding that the Product is manufactured by combining and mixing the ingredients […]. The [Product] mixture is then [shaped into individual items]. The process does not involve any baking of the ingredients.
3. Each individual […][item] weighs [#] grams.
4. The Product is sold and shipped to […][vendors] in cases of [#] […][items]. […], the Product is sold to consumers on an individual basis.
5. […], it is our understanding that the […][Product is] not individually packaged. […][The Product is shipped] in a frozen state […] thawed by the store [and kept refrigerated] for resale to customers. […]. Customers are free to choose the flavour and quantity of their liking.
6. The Product is available in […][various flavours] .
7. Samples of […][some] flavours of the Product […][were made available].
8. […][Ingredients of the various flavors of the Product]
RULING REQUESTED
You would like to know how the GST/HST applies to supplies of the Product.
RULING GIVEN
[…]
With respect to the flavours for which samples were made available, based on the facts set out above, we rule that supplies of the Product in […][those flavours] fall within paragraph 1(m) of Part III of Schedule VI to the ETA. As such, when supplied in quantities of six or more, supplies of the Product in these flavours are zero-rated (provided paragraph 1(q) does not apply). However, when sold in quantities of less than six, supplies of the Product in these flavours are taxable at the full rate of GST or HST, as applicable.
Furthermore, it should be noted that where a particular […][vendor sales location ] is determined to be an establishment as per paragraph 1(q) of Part III of Schedule VI, all supplies of the Product would be taxable at the full rate of GST/HST, regardless of the quantity supplied.
EXPLANATION
Paragraph 1(m) of Part III of Schedule VI to the ETA excludes from zero-rating cakes, muffins, pies, pastries, tarts, cookies, doughnuts, brownies, croissants with sweetened filling or coating, or similar products where, (i) they are prepackaged for sale to consumers in quantities of less than six items each of which is a single serving, or (ii) where they are not prepackaged for sale to consumers and are sold as single servings in quantities of less than six, but not including bread products, such as bagels, English muffins, croissants or bread rolls, without sweetened filling or coating.
The Product is made by combining and mixing its ingredients to the extent that they are no longer identifiable within the Product as a whole. It is our position that the Product is considered to be a similar product for the purpose of paragraph 1(m).
[With respect to the flavours for which samples were not made available, a ruling can only be issued when all the relevant facts of a product are known. While we cannot provide a ruling for these Product flavours, we can offer the following interpretation that will provide you with some guidance when determining the application of the GST/HST to the supply of the Product in these flavours.]
INTERPRETATION GIVEN
Granola Products
Paragraph 1(h) excludes granola products except for those which are sold primarily as breakfast cereal. Paragraph 64 of Memorandum 4.3 – Basic Groceries (Memorandum 4.3) identifies granola bars as generally having a mixture of cereals (e.g., rolled oats, rice, or other whole grains) and honey and/or syrup as the main ingredients, and may include nuts and dried fruits. The ingredients in granola bars are not processed to a great extent, thereby retaining the distinct character of each ingredient within the bar. Granola bars may also have a chocolate or sweetened coating.
Where [a flavor of the Product] has granola as a primary ingredient and the ingredients […] are not processed to the extent that the distinct character of each ingredient is lost, it is possible that such a flavour of the Product would be excluded from zero-rating under paragraph 1(h).
Paragraph 65 of Memorandum 4.3 also addresses bars that contain a mixture of cereals and honey and/or syrup, where the ingredients have been processed to the point that they have lost their distinct character. Bars of this nature are not considered to be granola bars, but rather cereal bars or muffin bars. Cereal bars and muffin bars are treated as a product similar to sweetened baked goods and may be excluded under paragraph 1(m) of Part III of Schedule IV for GST/HST purposes.
Fruit-based Snack Foods
Paragraph 1(l) excludes supplies of "fruit bars, rolls or drops or similar fruit-based snack foods".
"Fruit-based snack foods" is the common denominator in the exclusion; that is, the exclusion applies to fruit-based snacks in the form of bars, rolls or drops, and similar fruit-based snacks. In the context of this provision, our view is that "fruit-based" means the product contains fruit as a primary ingredient and may also contain other ingredients.
It is also our view that products having fruit as a primary ingredient, such that the product is represented to consumers as being fruit-based, will be within this exclusion. Such a product could include fruit in combination with any of the following: vegetables, grains or seeds. It may also mean that a product is not dominantly composed of fruits.
Since a wide variety of products may fall within this exclusion, we are of the view that textures will also vary. As a result, we do not consider texture to be an important criterion in determining if a product falls under this exclusion. The fact that a product is nutritious would not, in our view, preclude the product from being excluded under paragraph 1(l). As a result, we consider that protein, energy and similar […][items] which contain fruit as a main or important ingredient or which are marketed in a manner which suggests to the consumer that the […][product item is fruit based], would fall within the ambit of this exclusion.
[…][Flavours of the product for which samples were made available]
[…]. It should be noted that all of […][the flavours of the Product for which samples were not made available] have either gluten free oats or fruit content included in the ingredients. Therefore, it is possible that each of the flavours are excluded from zero-rating as either a granola product or as a fruit-based snack. However, as noted, without a sample, a proper determination cannot be made.
Eating Establishment
Paragraph 1(q) states that, in general, where all or substantially all (90% or more) of the sales of food or beverages made at an establishment are included in paragraphs 1(a) to 1(p) of Part III of Schedule VI, sales of food or beverages made at the establishment will not be zero-rated supplies, except where:
(i) the food or beverage is sold in a form not suitable for immediate consumption, having regard to the nature of the product, the quantity sold or its packaging, or
(ii) in the case of sweetened baked goods, (such as doughnuts, muffins, and cookies),
(A) the product is prepackaged for sale to consumers in quantities of more than five items each of which is a single serving, or
(B) the product is not prepackaged for sale to consumers and is sold as single servings in quantities of more than five,
and is not sold for consumption at the establishment.
For the purposes of this provision, establishments are considered by the CRA to be providers of prepared food and beverages whose sales of taxable food and beverages constitute 90% or more of their sales. Examples of establishments include restaurants, takeout and home delivery outlets, lunch counters, coffee shops, snack bars, mobile canteens, and catering services.
The essence of paragraph 1(q) of Part III of Schedule VI is to ensure that supplies of food and beverages made at such establishments are generally taxable and not zero-rated, except where specific conditions are met. Certain supplies of food and beverages made at such establishments remain zero-rated under section 1 of Part III of Schedule VI, based on factors such as form, packaging, and the quantity sold.
This means that if […][a particular vendor sales location] is determined to be an “establishment”, as per paragraph 1(q) of Part III of Schedule VI, […][that vendor sales location] would be required to collect GST/HST on all of its sales of food and beverages (with certain exceptions) when substantially all of its sales of foods and beverages are otherwise […][subject to the GST/HST] due to paragraphs 1(a) to (p) of Part III of Schedule VI.
While paragraph 1(q) of Part III of Schedule VI is relevant to be considered, we cannot confirm whether 90% or more of the sales […][at vendor sales locations] are taxable supplies included in any of paragraphs 1(a) to 1(p).
For more information, please refer to paragraphs 136 to 139 of GST/HST Memorandum 4.3, Basic Groceries and to GST/HST Policy Statement P-251, Eating Establishments.
In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, the Canada Revenue Agency (CRA) is bound by the ruling(s) given in this letter provided that: none of the issues discussed in the ruling(s) are currently under audit, objection, or appeal; no future changes to the ETA, regulations or the CRA’s interpretative policy affect its validity; and all relevant facts and transactions have been fully and accurately disclosed.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 289-356-2627. Should you have additional questions on the interpretation and application of GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.
Yours truly,
Zubair Patel
Senior Rulings Officer
Strategic and Emerging Issues Unit
General Operations and Border Issues Division
GST/HST Rulings Directorate
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