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: 206668
Business Number: [#]
Dear [Client]:
Subject: GST/HST RULING
Supply of MCT Oils
Thank you for your letter of January 29, 2020, concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to supplies of […] MCT oil (Product 1) […].
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 facts to be as follows:
1. […] (the Company) is a GST/HST registrant […].
2. The sole ingredient of Product 1 is modified coconut oil. During modification, long chain triglycerides are removed from the coconut oil, leaving the product with only the medium chain triglycerides […].
3. The front label of Product 1 identifies the product as MCT Oil and states the product is great for […][beverages] and salads:[…].
4. The back label of Product 1, in reference to the product, states […][description of product and health claims][…]
- […] 100% medium chain triglycerides, […]
5. […].
6. The nutritional facts table for Product 1 indicates […].
7. […][The packaging says] to introduce the product slowly […].
8. On the manufacturer’s website, […] and marketing material, the following additional information was obtained for Product 1:[…]
9. The manufacturer’s website lists some suggested recipes to which Product 1 can be added[…].
10. […][Information about Product 2]
RULING REQUESTED
You would like to know if supplies of Product 1 and […][Product 2] are zero-rated as basic groceries.
RULING GIVEN
Based on the facts set out above, we rule that Product 1 is not zero-rated under section 1 of Part III of Schedule VI to the ETA.
[…][However,] the full marketing and representations attached to […][Product 2] [are not current]. Consistent with the guidelines set out in GST/HST Memorandum 1.4 Excise and GST/HST Rulings and Interpretations Service, the CRA will not issue a ruling in hypothetical circumstances. As such, we consider the related request to be in respect of a hypothetical circumstance. We therefore cannot rule on what the application of the GST/HST would be in this hypothetical situation. We will however, provide you with general comments.
EXPLANATION
Generally, in accordance with section 165, every recipient of a taxable supply made in Canada shall pay tax calculated at the rate of 5% on the value of the consideration for the supply (or at the rate of 13% in Ontario; 15% in New Brunswick, Newfoundland and Labrador, Nova Scotia and Prince Edward Island) unless the supply is zero-rated. The tax rate in respect of a zero-rated supply is 0%. A zero-rated supply is a supply that is included in Schedule VI.
Section 1 of Part III of Schedule VI zero-rates supplies of food or beverages for human consumption, including sweetening agents, seasonings and other ingredients mixed with or used in the preparation of such food or beverages, other than supplies included in paragraphs (a) to (r) of that section.
The terms “food” and “beverage” are not defined in the ETA. Our approach is that these terms are to be read according to their ordinary meaning. As stated in GST/HST Memorandum 4.3, Basic Groceries (MS 4.3), we consider a product to be a food or beverage if an average consumer would recognize and purchase the product as such in the ordinary course of buying basic groceries. (i.e., food, beverages and ingredients marketed for human consumption). This approach is based on the view that food and beverages are usually consumed by an average person 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 benefits related to performance or physique. Individual preferences for, or dislikes of, certain products would not alter the general perception that a product is, or is not, a food or beverage. Similarly, products that meet the 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 basic groceries.
The term “ingredient” is also not defined in the ETA. According to paragraph 4 of MS 4.3, our view is that an average consumer would consider a product to be an ingredient if it added to the flavour, texture or appearance of the final product; that is, if it was integral to the final product. Moreover, to be considered an ingredient, the final product, in and of itself, must be recognized by the average consumer, to be a food or beverage. Thus, a product that is marketed for its beneficial effects and that is added to a food or beverage simply as a way to consume it would not be considered as an ingredient.
As noted in paragraph 148 of MS 4.3, we consider products that are consumed for their therapeutic or preventative effects (e.g., to correct actual or perceived health problems), or to achieve specific beneficial effects related to performance or physique, to be dietary supplements. We also consider products that are labelled or marketed as products to be consumed primarily to facilitate the intake of ingredients that place an emphasis on the benefits of the product to be dietary supplements.
GST/HST Info Sheet GI-001 Products Commonly Described as Dietary Supplements identifies the factors listed below as factors that may indicate that a product is not a basic grocery.
- The label or marketing material refers to the product as a "dietary supplement" or "supplement".
- The label or marketing material claims that the product has a therapeutic or preventive effect, enhances mental or physical performance, or enhances physique.
- The label or marketing material emphasizes a particular nutrient that is not commonly regarded as an ingredient to basic groceries; for example, whey protein isolate or chlorophyll. The product may also emphasize the purity or source of the nutrient.
- The label or marketing material indicates the dosage size and how often the product should be taken. There may also be warnings advising certain people such as children or pregnant women not to take the product, or that the product is to be taken only as directed by a physician.
- The product has a Drug Identification Number (DIN), a Drug Identification Number - Homeopathic Medicine (DIN-HM), or a Natural Products Number (NPN).
- The product lists the active or medicinal ingredients.
- The product is compared to other products that are not considered to be a food, beverage or ingredient. For example, a product in powder form may be compared to a product in pill form.
- The label or marketing material focuses on the benefits to be derived from taking the product.
- The product is in a form not commonly associated with food, beverages or ingredients, for example, pills, capsules, tablets, gels, liquids in eye-dropper bottles, fibres, wafers, powders and concentrates.
- In sales catalogues or stores, the product is not placed with products that are commonly recognized as foods, beverages or ingredients. The product may be placed with non-prescription drugs.
Dietary supplements may be made from natural or synthetic ingredients and include products such as vitamins, minerals, tonics, fiber, protein, amino acids, fatty acids, enzymes, herbal supplements, or compounds derived from plant or animal products. Dietary supplements are available in various forms including, but not limited to, tablet, pill, capsule, powder, liquid, gel, wafer and concentrates. Examples of dietary supplements include alfalfa, yeast, ginseng, lecithin, bee pollen, seaweed and fiber whether in tablet, pill, capsule, powder, granulated or liquid form.
Products referred to as dietary supplements are not considered to be basic groceries as they are not products that an average consumer would ordinarily purchase in the course of buying food or beverages.
Product 1
The label and marketing material of Product 1 place emphasis on the product being medium chain triglycerides, […], with the beneficial/purposeful effects of […]. Directions on use indicate that to achieve the best results from using the product, the product should be incorporated into a […] diet and to be taken with foods or beverages, or by the spoonful. Furthermore, suggested use indicates to build from [#] teaspoon up to [#] tablespoon [#] times a day. Such representations are consistent with a dosage and are indicative that the product is not an ingredient in food preparation, rather that the incorporation of the product into foods is for the purpose of ingestion and not for providing flavour, texture or appearance of the food.
In review of the marketplace, Product 1 is available through health food stores and online suppliers. The majority of suppliers represent the product as a dietary supplement by direct reference or by categorizing the product as a product held in their vitamins, minerals and supplements department.
Product 1 is considered a dietary supplement that is consumed for its therapeutic or preventative effects as it is presented and marketed this way. As such, Product 1 does not fall under the category of food or beverage and is not zero-rated under section 1 of Part III of Schedule VI of the ETA.
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. The interpretation(s) given in this letter, including any additional information, is not a ruling and does not bind the CRA with respect to a particular situation. Future changes to the ETA, regulations, or the CRA's interpretative policy could affect the interpretation(s) or the additional information provided herein.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 289-387-0079. 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,
Elizabeth Onsiong
Rulings Officer
Strategic and Emerging Issues Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate
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