28 July 2004 GST/HST Interpretation 48596 - Transfer Payments Ruling Request

Please note that the following document, although correct at the time of issue, may not represent the current position of the Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence.

Dear XXXXX:

Thank you for your letter XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to supplies of "Dim Sum" and other frozen foods. Additional information was provided by XXXXX via telephone.

You have described the following hypothetical situation:

1. The ABC company is a Chinese restaurant.

2. ABC's main business is serving Chinese food to customers in its establishment. In addition, the company sells frozen foods and "Dim Sum", an appetizer size type of Chinese food, for consumption off their premises.

3. Most of the "Dim Sum" is sold in a raw to semi-cooked state; therefore it is kept in a refrigerator or freezer. Certain pastry varieties of "Dim Sum", which are consumable without further cooking, are kept at room temperature.

4. "Dim Sum" is sold to:

•   customers who eat at the restaurant and want extra to take out,

•   customers who call in and pick up their order for take out,

•   hotel and convention centers without "catering", and

•   hotel and convention centers with "catering".

5. All take-out orders are provided in standard take out containers and require further cooking prior to consumption (except for pastries).

6. When supplying orders to hotel and convention center customers without "catering", the food is delivered to the customer in an uncooked or frozen state in standard takeout containers. ABC does not provide staff to cook and serve the food nor does it provide serving amenities.

7. The company does not specifically advertise "catering services" but tends to "cater" about one function per month.

8. When "catering" to hotels and convention centers, ABC will bring their un-cooked and frozen foods, which may include "Dim Sum", to their clients premises. ABC provides staff to cook and serve the food and provides serving amenities.

9. ABC does not have a "catering" menu. All sales are driven from the regular menu and priced as listed.

Interpretation Requested

What is the GST/HST status on the sale of "Dim Sum" and other frozen food to:

1. Customers who eat at the restaurant and want extra to take out;

2. Customers who call in and pick up their order for take out;

3. Hotel and conventions centers without "catering"; and

4. Hotel and conventions centers with "catering"?

Interpretation Provided

Based on the situation set out above, the sale of "Dim Sum" and other frozen food to customers for take-out; customers who pick up; and hotel and conventions centers without "catering" is zero-rated except for the pastry varieties of Dim Sum which would be taxable at 7% GST or 15% HST, as applicable, when sold in quantities of less than six. The sale of "Dim Sum" and other frozen food to hotel and conventions centers where "catering" is provided is taxable at 7% GST or 15% HST, as applicable.

The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the Excise Tax Act, if enacted, could have an effect on the interpretation provided herein. These comments are not rulings and, in accordance with the guidelines set out in section 1.4 of Chapter 1 of the GST/HST Memoranda Series, do not bind the Canada Revenue Agency with respect to a particular situation.

Explanation

Taxable supplies of goods and services made in Canada are generally subject to tax at 7% GST or 15% HST, as applicable. However, "zero-rated" supplies of goods and services are subject to tax at 0%. A zero-rated supply is any supply included in Schedule VI to the ETA.

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 to be mixed with or used in the preparation of such food or beverages), unless one of the exclusions set out in paragraphs 1(a) through 1(r) applies.

Paragraph 1(q) of Part III of Schedule VI to the ETA excludes the following from zero-rating:

"food or beverages when sold at an establishment at which all or substantially all of the sales of food or beverages are sales of food or beverages included in any of paragraphs (a) to (p) 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 a product described in paragraph (m),

(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"

As the restaurant appears to be an "establishment" for the purposes of section 1, paragraph 1(q) would apply.

The sale of "Dim Sum" and other frozen foods can be divided into two categories when "catering" is not provided:

(a) Supplies of raw to semi-cooked "Dim Sum" and other frozen foods; and

(b) Supplies of "Dim Sum" pastries, which are kept at room temperature and are consumable without cooking.

The supply of products described in (a) above is considered "not suitable for immediate consumption", as they are in a raw to semi-cooked state. Therefore, they would be zero-rated as 1(q)(i) would apply.

The supply of products described in (b) above would be zero-rated under 1(q)(ii) only when sold in quantities of more than five and not sold for consumption at the establishment, otherwise, the supply would be taxable at 7% GST or 15% HST, as applicable.

Paragraph 1(o.5) of Part III of Schedule VI to the ETA excludes the following from zero-rating:

"food or beverages sold under a contract for, or in conjunction with, catering services"

When the company makes a supply of "Dim Sum" and other frozen food to hotels and convention centers under a contract for, or in conjunction with catering services, the supply is taxable at 7% GST, or 15% HST, as applicable, pursuant to paragraph 1(o.5) of Part III of Schedule VI to the ETA.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-9585.

Yours truly,

Nicole Thomas, CMA
Goods Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

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