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
5th floor, Tower A, Place de Ville
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 247361
Business Number: […]
Dear [Client]:
Subject: GST/HST Ruling - GST/HST Status of […][a chocolate product]
Thank you for your correspondence of March 18, 2024, concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to […][a chocolate product] (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 Product is manufactured by […] (the Manufacturer) and sold by […] (the Retailer).
2. The Product is identified on the packaging as […].
3. The Product is packaged in a [#] gram resealable bag that contains approximately [#] individually wrapped pieces of the Product. The wrapping for each piece resembles wrapping typically used for candies like chocolates.
4. The outer packaging for the Product also resembles packaging typically used for candies and confection.
5. The front of the product packaging describes the Product as […].
6. Marketing contained on the Manufacturer’s corporate website […] includes the following statement: […].
7. The ingredients of the Product, as listed on the product packaging, are as follows: […].
8. The Retailer has indicated that the Product is created in its “candy category” and is sold alongside confectionary items and cookies.
9. The Manufacturer is generally in the business of manufacturing chocolate products.
RULING REQUESTED
You would like to know whether the supply of the Product is zero-rated under section 1 of Part III of Schedule VI.
RULING GIVEN
Based on the facts set out above, we rule that the supply of the Product is a taxable supply that is excluded from zero-rating under paragraph 1(e) of Part III of Schedule VI of the ETA.
EXPLANATION
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 to be mixed with or used in the preparation of such food or beverages) unless an exclusion set out in paragraph 1(a) through 1(r) of that section applies.
Paragraph (e)
Paragraph 1(e) excludes from zero-rating candy, confectionery that may be classed as candy, or any goods sold as candies, such as candy floss, chewing gum and chocolate, whether naturally or artificially sweetened, including fruits, seeds, nuts and popcorn when they are coated or treated with candy, chocolate, honey, molasses, sugar, syrup or artificial sweeteners.
This exclusion is intended to apply quite broadly as it applies not only to candy, but also to supplies of confectionery which may be classed as candy and supplies of goods which are sold as candy. Furthermore, it applies whether the product at issue is artificially or naturally sweetened. Thus, the exclusion is intended to apply not only to supplies of candy but supplies of anything that is likely to compete with candy in the marketplace. Accordingly, if the main ingredient is a form of sugar or chocolate, this is a strong indicator that the item is a candy or confectionery as it will likely compete with other candies or confectionery.
It is CRA’s position that where sugar or chocolate are the main ingredient, the product will ordinarily fall within paragraph (e) unless the nature of the product indicates that it should not be classed as a candy, confectionery that may be classed as candy or goods sold as candies.
Paragraph (m)
Paragraph 1(m) excludes supplies of cakes, muffins, pies, pastries, tarts, cookies, doughnuts, brownies, croissants with sweetened filling or coating, or similar products where:
(i) they are packaged for sale to consumers in quantities of less than six items each of which is a single serving, or
(ii) 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.
Some other factors to also consider in determining the GST/HST treatment of products include the product labelling, packaging and marketing within a store and/or on a website. With regards to marketing, it is important to consider whether certain marketing is related to the flavour of a particular item as opposed to characterizing the product itself. […] Although the flavour of the product may be described in paragraph 1(m), it is important to recognize that this is simply the flavour of the product that is being promoted through marketing and not the nature of the product. Such products may fall within paragraphs (e) based on the nature of the product rather than falling within paragraph (m). […].
The main ingredients of the Product are chocolate and sugar. With respect to the marketing and advertising of the Product, both the package and the manufacturer’s website identify and promote the Product as a chocolate. Furthermore, packaging for the Product resembles packaging typically used for candies and confectionary. In addition to each piece being individually wrapped, pieces of the Product resemble bite-sized pieces of chocolate. […] Therefore, supplies of the Product would be excluded from zero-rating under paragraph 1(e) of Part III of Schedule VI of the ETA as candy or confectionary that may be classed as candy.
DISCLAIMER
In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1-4, Excise and GST/HST Rulings and Interpretations Service, the 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 the GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287 or by fax to 1-418-566-0319.
Sincerely,
Zubair Patel
Senior Rulings Officer
Strategic and Emerging Issues Unit
General Operations and Border Issues Division
GST/HST Rulings Directorate
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