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.
[Addressee]
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
Case Number: 136624
July 19, 2011
Dear [Client]:
Subject:
GST/HST INTERPRETATION
Ontario Point-of-Sale Rebate on Prepared Food and Beverages
This is further to our letter to [...] of [mm/dd/yyyy], case number [...], concerning the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) and the implementation of the HST in Ontario and British Columbia.
HST applies at the rate of 15% in Nova Scotia, 13% in Ontario, New Brunswick, and Newfoundland and Labrador, and 12% in British Columbia. GST applies at the rate of 5% in the remaining provinces and territories. Since the issue concerns the application of the HST in Ontario, all references to the HST will be to the 13% rate.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
It has recently come to our attention that there was an error in our response [...], which dealt with the Ontario point-of-sale rebate for prepared food and beverages (the rebate). In addition, our responses to the specific examples [...] [of food and beverages purchases], although correct at the time, are no longer correct. Between the time the rebate was first announced and the time the regulations governing the rebate were enacted, a number of changes were made. Finally, the response to [...] [the redemption of points] has been revised for clarification.
The responses provided below replace the responses in our previous letter.
Interpretation Requested
You would like to know our position on the following:
[...]
a) Under the current RST exemption, qualifying food and beverages must be sold at an "eating establishment" in order to qualify for exemption, but that does not appear to be the case with the POS rebate. Please confirm.
b) Please confirm the tax rate(s) applicable to the following purchases of food and beverages (total in all cases is $4 or less):
1. Cup of coffee and granola bar
2. Single serving bottle of water and granola bar
3. Single serving bottle of water, cup of coffee and granola bar
4. Single serving of unflavoured milk and pre-packaged muffin
5. Single serving of unflavoured milk and non-pre-packaged muffin
6. Single serving of unflavoured milk, sandwich and pre-packaged muffin
7. Cup of coffee and pre-packaged muffin
c) Under a points reward program, a customer may redeem points at a registrant franchisee's establishment for a free cup of coffee. The retailer is reimbursed for the coffee by the registrant franchisor that runs the program. Will the reimbursement be subject to HST at 13% or 5%? Is this deemed to be HST included or tax-extra?
Interpretation Given
[...] [The rebate for prepared purchases of food and beverages]
The Province of Ontario provides for the rebate on the supply of qualifying food and beverages. The rebate is administered by the CRA under an agreement with Ontario but is legislatively provided for by the combined effect of section 51 of the Ontario Retail Sales Tax Act and sections 1 and 2 of the Ontario Regulations 262/10 Point of Sale Rebates. In section 6 of the Ontario regulations, it states that prepared food and beverages are qualifying property if they are qualifying food and beverages as defined in the federal Deduction for Provincial Rebate (GST/HST) Regulations made pursuant to the ETA and if the circumstances described in paragraph 11 of Schedule 1 to those regulations exist.
The federal regulations allow a supplier to make a deduction in their net tax calculation where they have paid or credited the purchaser the rebate for qualifying food and beverages sold to a person at a particular time, if the total of all consideration for all qualifying food and beverages sold to the person at the particular time is four dollars or less. Under paragraph 154(2)(a), consideration does not include GST/HST; therefore the $4 threshold is calculated without reference to the GST/HST.
There is no requirement in the federal regulations as to the nature of the establishment or the location where qualifying food and beverages must be purchased. The rebate will be available regardless of whether the qualifying prepared food and beverages are consumed on or off the premises of the establishment where sold.
However, the GST/HST legislation for basic groceries also uses the term "establishment". Under paragraph 1(q) of Part III of Schedule VI, supplies of certain food or beverages are subject to GST/HST where all or substantially all (90% or more) of the goods supplied by the establishment are taxable at 5%/13%. This provision subjects some otherwise zero-rated basic groceries or beverages to tax and thus the food or beverage may be a qualifying food or beverage for purposes of the rebate. For example, a bagel purchased at a grocery store would be a zero-rated basic grocery. However, if that same bagel was bought at a restaurant, it would be subject to GST/HST and would be a qualifying food.
[...] [Examples of food and beverages purchases]
The federal regulations contain a definition of "qualifying food and beverages". Generally, qualifying food and beverages are food and beverages that are not zero-rated under section 1 of Part III of Schedule VI. Since the definition of qualifying food and beverages in the Ontario regulations refers to the definition in the federal regulations, all references below to the definition of qualifying food and beverages are references to the federal regulations.
The tax rate(s) applicable to the following purchases of food and beverages for $4 or less are as follows:
1. Cup of coffee and granola bar
Food and beverages heated for consumption are qualifying items for purposes of the rebate under paragraph (a) of the definition. Therefore, if the coffee is heated, it will qualify for the rebate. The supplier will collect only the 5% federal part of the HST on the sale of the coffee and will pay or credit the rebate of the 8% provincial part to the purchaser at the point of sale.
Certain food and beverages are qualifying items only when sold with another qualifying item. The granola bar is one of these foods and under subparagraph (k)(iii) of the definition will only qualify for the rebate when sold with a qualifying food or beverage item such as a cup of coffee. As the coffee is a qualifying beverage, the supplier will collect only the 5% federal part of the HST on the sale of the granola bar and will pay or credit the rebate of the 8% provincial part to the purchaser.
2. Single serving bottle of water and granola bar
Water is not specifically mentioned as a qualifying beverage for purposes of the rebate. However, under paragraph (j) of the definition, single serving sizes (i.e., less than 600 ml in volume) of certain beverages (such as water) qualify for the rebate when sold with a qualifying food or beverage item. A single serving of bottled water will thus qualify for the rebate only when sold with a qualifying food or beverage item.
As noted in the response to example 1, a granola bar is not a qualifying food item by itself, rather a food which must be sold with a qualifying food or beverage item to be eligible for the rebate.
Thus, a single serving (less than 600 ml in volume) bottle of water sold with a granola bar will not be qualifying food or beverages for purposes of the rebate and the supplier must collect the full 13% HST on the sale and cannot pay or credit the rebate to the purchaser.
3. Single serving bottle of water, cup of coffee and granola bar
As noted in the response to example 2, the single serving bottle of water and the granola bar will only qualify for the rebate when sold with a qualifying food or beverage item. The coffee, if heated for consumption, is a qualifying beverage. Thus, the coffee will qualify for the rebate and will only be subject to the 5% federal part of the HST. The bottle of water and granola bar, as they are sold with a qualifying beverage item, will also only be subject to the 5% federal part of the HST.
4. Single serving of unflavoured milk and pre-packaged muffin
Unflavoured (white) milk in a single serving size container is considered to be a basic grocery for GST/HST purposes and hence is usually zero-rated. However, white milk when packaged in single servings is subject to HST at 13% when sold under the following conditions: through a catering service; through a vending machine; when dispensed at the place where it is sold; and when sold at an establishment where 90% or more of the goods supplied by the establishment are taxable at 5%/13%.
Under subparagraph (i)(i) of the definition, milk (flavoured or unflavoured) is a qualifying beverage for purposes of the rebate when it is sold under conditions where it is not zero-rated. Thus, in all circumstances in which a supply of unflavoured (or flavoured) milk would not be zero-rated, it would be eligible for the rebate. In such a case, only the 5% federal part of the HST will be collected on the sale.
In this example, the purchase included the milk, as well as a pre-packaged muffin. Under subparagraph (k)(i) of the definition, pre-packaged muffins, where they are pre-packaged for sale to consumers in quantities of less than six items each of which is a single serving (i.e., each weighing less than 230 grams), will qualify for the rebate only when sold with a qualifying food or beverage item. If the sale of the milk is not zero-rated, the sale of the muffin will qualify for the rebate and only the 5% federal part of the HST will be collected.
However, it must be kept in mind that a single serving of unflavoured milk is often a zero-rated supply. In such a case, it will not be qualifying item since it is zero-rated. The pre-packaged muffin will then not be sold with a qualifying food or beverage, and will not be a qualifying item. Thus, the eligibility of the muffin for the rebate depends on the tax status of the milk.
5. Single serving of unflavoured milk and a non-pre-packaged muffin
Under paragraph (e) of the definition, cakes, muffins, pies, tarts, cookies, doughnuts, brownies, croissants with sweetened filling or coating, or similar products where they are not pre-packaged for sale to consumers and are sold as single servings in quantities of less than six, are qualifying food items for purposes of the rebate. Therefore, the purchase of one muffin that is not pre-packaged will be the purchase of a qualifying food item and the rebate will apply to the sale. The supplier will collect only the 5% federal part of the HST on the sale of the muffin and will pay or credit the rebate of the 8% provincial part to the purchaser.
As noted in the response to example 4, a single serving size of milk (i.e., less than 600 ml in volume) will qualify for the rebate when sold in circumstances where the sale is not zero-rated.
6. Single serving of unflavoured milk, sandwich and pre-packaged muffin
As noted in the responses to examples 4 and 5, a single serving of unflavoured milk is a qualifying beverage when sold in circumstances where the sale is not zero-rated.
Under paragraph (c) of the definition, sandwiches and similar products other than when frozen are qualifying foods for purposes of the rebate.
As noted in the answer to example 4, pre-packaged muffins, where they are pre-packaged for sale to consumers in quantities of less than six items each of which is a single serving, are qualifying foods when sold with a qualifying food or beverage item. As the pre-packaged muffin is sold with a qualifying food item (sandwich) and possibly with a qualifying beverage (milk), the rebate will apply to the purchase of the muffin.
The supplier will collect only the 5% federal part of the HST on the sale of the milk (if the milk is subject to HST), sandwich and muffin and will credit the rebate of the 8% provincial part of the HST to the purchaser.
7. Cup of coffee and a pre-packaged muffin
As noted in the response to examples 1 and 3, coffee heated for consumption is a qualifying beverage for purposes of the rebate.
As noted in the response to example 4, pre-packaged muffins are only qualifying foods when sold with a qualifying food or beverage item. As a cup of coffee is a qualifying beverage item, the purchase of the muffin is eligible for the rebate.
The supplier will credit the rebate on the purchase of the coffee and the muffin and charge only the 5% federal part of the HST and will credit the rebate of the 8% provincial part of the HST to the purchaser.
[...] [The redemption of points]
The definition of "coupon" in subsection 181(1) includes a voucher, receipt, ticket or other device. CRA has stated that the redemption of points is viewed as the redemption of a coupon.
The redemption of a coupon resulting in a price reduction or discount in respect of coupons accepted by a vendor is deemed not to be consideration for a supply pursuant to paragraph 181(5)(a).
Note that where a specific number of points may be exchanged for a specific product with no cash required to be tendered, it is CRA's position that subsection 181(4) will apply. In the situation presented, the tax implications are as follows:
• GST/HST is collectible on the reduced value of consideration (in this case, zero);
• no input tax credit in available under subsection 181(5); and
• the reimbursement is not consideration for a supply.
The foregoing comments represent our general views with respect to the subject matter of your request. These comments are not rulings and, in accordance with the guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, do not bind the Canada Revenue Agency with respect to a particular situation. Future changes to the ETA, regulations, or our interpretative policy could affect this interpretation.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-957-8253. 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,
Gunar Ozols
Goods Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate
UNCLASSIFIED
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