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.
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 163652
Business Number: […]
Dear [Client]:
Subject: GST/HST RULING
Application of GST/HST to the supply of […][a snack food product]
Thank you for your letter of [mm/dd/yyyy], on behalf of […] (the Company), concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the Company’s product identified as […] (the Product). We apologize for the delay in this response.
The HST applies in the participating provinces at the following rates: 13% in Ontario, New Brunswick, and Newfoundland and Labrador, 14% in Prince Edward Island and 15% in Nova Scotia. 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 as follows:
1. The Company, a GST/HST registrant, […].
2. A sample of the Product, in the […] flavour, was provided along with a letter of August 13, 2014.
3. The sample contains the following information on the package:
* Ingredients: […]
* Contains: […]
* Nutrition Facts: […]
4. The Product is salty in taste.
5. The Product available in Canada also comes in […][different flavours].
6. The texture of the Product is crispy and crunchy.
7. The cooking process of the Product is […].
8. The Product is made into […] pieces. Each piece measures approximately […] centimetres in diameter, and is about […] millimetres thick. […].
9. The Product is labelled as cracker chips on the packaging.
10. The labelling on the sample contains the following descriptions: […]
11. The following words are printed on one side of the package:
[…][Nutritional benefits of the Product]
12. The following facts are shown above the Nutrition Facts table on the package: […]
13. The Product is packed loosely in a plain foil-type bag placed inside a carton box, which has a net weight of […] grams. The front of the box has a graphic depicting […] [the Product].
14. The Company’s website, […], contains the following marketing statements:
[…][Nutritional benefits and distinctive characteristics of the Product]
15. There is no claim that the Product is sold as a breakfast cereal.
16. The Product is merchandised and retailed in the cracker aisle of the supermarket.
RULING REQUESTED
You would like to confirm that the supply of the Product is a zero-rated supply under section 1 of Part III of Schedule VI to the ETA
RULING GIVEN
Based on the facts set out above, we rule that the supply of the Product is not a zero-rated supply under section 1 of Part III of Schedule VI to the ETA. Supplies of the Product are excluded from zero-rating under paragraph 1(f) of Part III of Schedule VI to the ETA.
EXPLANATION
Generally, in accordance with section 165, every recipient of a taxable supply made in Canada is required to pay GST/HST on the value of the consideration for the supply, unless the supply is zero-rated (listed in Schedule VI to the ETA and subject to the GST/HST at the rate of 0%).
Section 1 of Part III of Schedule VI to the ETA 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.
Paragraph 1(f) of Part III of Schedule VI to the ETA excludes from zero-rating the following:
chips, crisps, puffs, curls or sticks (such as potato chips, corn chips, cheese puffs, potato sticks, bacon crisps and cheese curls), other similar snack foods or popcorn and brittle pretzels, but not including any product that is sold primarily as a breakfast cereal.
The food items captured by paragraph 1(f) as mentioned above are not limited to potato chips, corn chips, cheese puffs, potato sticks, bacon crisps, or cheese curls but include any “other similar snack foods”. The term “other similar snack foods” as referenced in paragraph 1(f) of Part III of Schedule VI to the ETA is not defined. The CRA applies the following factors as listed in paragraph 56 of the GST/HST Memoranda Series 4.3, Basic Groceries (MS 4.3) when determining whether a food product is one of those “other similar snack foods”.
Properties
* Ingredients: potatoes, corn or corn meal.
* Flavours: In addition to salty, the product is available in flavours such as salt and vinegar, barbecue, all-dressed, cheese, nacho, ketchup, pizza, sour cream and onion, etc.
* Texture: crispy, crunchy, brittle or fluffy.
* Cooking process: deep fried or baked.
* Size and shape: small, thin, slice, (chip); long and slender cylindrical form (stick); fluffy mass (puff); or spiral or winding form (curl).
Labelling
* The word "chip", "crisp", "puff", "curl" or "stick" appears in the name of the product or elsewhere on the label (e.g., "healthier than a chip", "tastes like a chip" or "part chip").
* The label includes words found on packages of chips, crisps, puffs, curls, or sticks (e.g., "snack", "party snack" or "crunch").
Packaging
* The product is packaged loosely in a bag.
Marketing
* The advertising, whether through print or electronic media, includes words such as "chips", "crisps", "puffs", "curls" or "sticks" (e.g., "chip-loving eaters" or "healthier than a chip").
* The advertising, whether through print or electronic media, includes words found on packages of chips, crisps, puffs, curls or sticks (e.g., "snack", "snack food", "party snack", "crunch" or "crispy").
As noted in paragraph 58 of MS 4.3, none of the above factors is determinative of the tax status. Changes in the labelling, packaging or marketing would not necessarily result in a different tax status. All factors must be considered in determining whether a product falls within paragraph 1(f).
Paragraph 57 of MS 4.3 explains that products that are enumerated in paragraph 1(f) generally have potatoes, corn or corn meal as a main ingredient, however, inclusion of ingredients other than potatoes, corn or corn meal would not preclude a particular product from falling within paragraph 1(f). A product will be regarded as “other similar snack foods” if other factors indicate that the Product is a snack alternative in competition to the types of snack foods listed in paragraph 1(f).
Paragraph 56 of MS 4.3 also explains that in addition to salty, products that fall within paragraph 1(f) generally are available in flavours such as salt and vinegar, barbecue, all-dressed, cheese, nacho, ketchup, pizza, sour cream and onion, etc. There is no suggestion in this paragraph that a product falling within paragraph 1(f) has to have a wide variety of flavours.
In determining whether the Product is similar to the snacks as identified in paragraph 1(f) of Part III of Schedule VI to the ETA, we have applied these factors to the Product in question. Our findings respecting the Product are listed below:
Properties
* Ingredients: Corn, an ingredient that is commonly found in those types of snack foods enumerated in paragraph 1(f), is listed as one of those whole grain ingredients.
* Flavours: The Product comes in different flavours that are typically associated with snack foods enumerated in paragraph 1(f).
* Taste: The Product has a salty and […] taste.
* Texture: The Product is […]. It is […] similar to the type of texture commonly found in chips or crisps.
* Cooking process: The Product is […], similar to other […] chips.
* Size and shape: The Product is […] in shape. Each piece is comparable to the size of a chip.
Labelling
* The word “chips” appears next to the word “cracker” on the package. […].
Packaging
* The Product is packed […].
Marketing
* Marketing statements of the Product contain these words and descriptions: […][Description as a healthy satisfying snack].
* Advertised as a […].
Though the Product is packaged in a box similar to crackers and, as you have noted, contains some ingredients similar to that listed in Product C in Example 3 in MS 4.3, and is merchandised and retailed in the cracker aisle of the supermarket, our findings show that the Product has many characteristics (i.e., the properties, labelling, and marketing) that are similar to those snack foods listed in paragraph 1(f) of Part III of Schedule VI to the ETA.
We also noted from the sample that the Product is not just crispy; it is light, […] and crunchy. This kind of texture indicates the Product more closely resembles chips or crisps than traditional crackers.
[…] is a cooking method that is used to create […] [the Product]. The fact that a product is […][cooked this way] would not preclude it from falling in paragraph 1(f).
[…], the other information (e.g. the graphic, the product name, the product description) on the packaging helps to determine whether the Product is similar to a cracker or a chip.
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 given in this letter provided that: none of the issues discussed in the ruling are currently under 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 905-721-5222. 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,
David Nichol
Basic Groceries and Recaptured Input Tax Credits Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate
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