15 June 2005 GST/HST Interpretation 57994 - XXXXX Parking

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.

Excise and GST/HST Rulings Directorate Place de Ville, Tower A, 15th floor 320 Queen Street Ottawa ON K1A 0L5
XXXXX XXXXX XXXXX	Case Number: 57994
XXXXX XXXXX	June 15, 2005

Subject:

GST/HST APPLICATION RULING Tax Status of Canola, Flax, Pumpkin and Borage Oils

Dear XXXXX:

The XXXXX Tax Services Office has asked us to confirm the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the following transaction(s) XXXXX. Reference is also made to the letter XXXXX (with attachments) from XXXXX and the telephone conversations between you and the writer. The XXXXX responsible for your file has requested that the ruling be issued to you.

Statement of Facts

Our understanding of the facts, the transactions, and the purpose of the transactions is as follows:

1. XXXXX has requested a ruling on the tax status of the above-noted oils.

2. XXXXX crushes certified, organic canola, flax, pumpkin and borage seeds into their respective oils.

3. The process is "cold pressed" - XXXXX machines are attached to hoppers and the grain/seeds move through a crusher where the oil is extracted without using heat.

4. This method results in the least alteration of the oils - they are in the purest form.

5. You follow Health Canada's Natural Health Products Division guidelines but this is voluntary.

6. CODEX (an organization created by the Food and Agriculture Organization and the World Health Organization - both part of the United Nations) has suggested standards for handling certain food items and you follow these but this is also voluntary.

7. There is no grading done of the oils by any regulatory body.

8. The oils are sold in large quantities in XXXXX-gallon containers.

9. The labels placed on the containers are small and show the name, phone, fax numbers and state, for example, XXXXX.

10. There is no information on the labels that suggests the intended use.

11. You have no marketing information, pamphlets, brochures or a website.

12. You state that the oils are suitable for human consumption as a salad topping, low temperature cooking oil or for direct consumption as nutritional balancers.

13. XXXXX customers, in most instances, use the oil to produce supplements in capsule form.

14. Most of XXXXX sales are exported but some sales are made in Canada.

15. Currently, XXXXX does do not collect GST/HST on any of its sales in Canada.

16. XXXXX has imported borage oil in the past XXXXX and has paid GST upon importation.

TRANSACTIONS

1. XXXXX supplies the above-noted oils by way of sale.

2. XXXXX imported borage oil into Canada XXXXX that was subject to GST.

Ruling Requested

1. The supplies of the oils are zero-rated pursuant to section 1 of Part III of Schedule VI to the Excise Tax Act (the Act).

2. The importation of borage oil into Canada is not subject to GST/HST pursuant to section 6 of Schedule VII to the Act.

Ruling Given

1. Based on the facts set out above, we rule that supplies of canola, flax and pumpkin oil are zero-rated pursuant to section 1 of Part III of Schedule VI to the Act.

2. Supplies made in Canada of borage oil are taxable at 7 per cent GST or 15 percent HST.

3. The importation of borage oil into Canada is subject to 7 per cent tax pursuant to section 212 of the Act.

This ruling is subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST/HST Memoranda Series. We are bound by this ruling provided that none of the above issues is currently under objection or appeal; that there are no relevant changes in the future to the Excise Tax Act, or to our interpretative policy; and that you have fully described all necessary facts and transaction(s) for which you requested a ruling.

Explanation

In addition to the information provided by you and by XXXXX, information on the oils was obtained through research carried out over the Internet.

Food, Beverages and Ingredients

The preamble to section 1 of Part III of Schedule VI to the Act zero-rates the following:

"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), other than supplies of..."

Paragraphs 1(a) to (r) contain the exclusions from zero-rating. None of the exclusions apply in this case.

The words "food", "beverages" and "ingredients" are not defined in the Act. Policy Statement P-240, Application of GST/HST to Products Commonly Described as Dietary Supplements, (copy enclosed) addresses the question of whether products commonly described as "dietary supplements" are zero-rated as foods, beverages or ingredients. The policy states that "...in general, food and beverages are consumed 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 effects related to performance or physique." The only exceptions to the policy are for meal replacements and nutritional supplements (as defined in regulations to the Food and Drugs Act). The oils in question are neither meal replacements nor nutritional supplements.

The salient points contained in the policy with respect to food and beverages are:

•   a product will be a food or beverage if an average consumer would recognize and purchase the product as a food or beverage;

•   the determination is based on the views of an average consumer - individual preferences for, or dislikes of, certain products, or special dietary needs of certain segments of the population such as those with restricted or special purpose diets, are irrelevant;

•   consumers usually consume food for enjoyment or to allay hunger, while beverages are usually consumed for enjoyment or to quench thirst - in general, food and beverages are consumed 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 effects related to performance or physique; and

•   products that are labelled or marketed as products to be consumed to facilitate the intake of certain ingredients (nutritive or otherwise) or which place an emphasis on claims relating to the benefits of the product, for example, therapeutic or preventive effects, or enhancing performance or physique, are not considered to be products that an average consumer would ordinarily purchase in the course of buying food or beverages (e.g., products in pill, tablet, or capsule format).

The policy then lays out some more specific criteria for determining whether a product is a dietary supplement, based on the following sources:

•   labeling;

•   packaging/format; and

•   marketing.

With respect to ingredients, a product is an ingredient if an average consumer would recognize the product as an ingredient into food or a beverage. Generally, it is the view of the Canada Revenue Agency that an average consumer would consider a product to be an ingredient if the product added to the flavour, texture or appearance of the final product; that is, if it was integral to the final product. Moreover, in order to be regarded as an ingredient to a food or beverage, the final product, in and of itself, would be considered to be a food or beverage by the average consumer.

As with food and beverages, it is also recognized that some products that would be considered to be ingredients by an average consumer have no nutritive value. It is also recognized that consumers may select and add certain products to mix with or include as part of their preparation of food and beverages for the particular nutritive value that the product offers. However, it is the Canada Revenue Agency's view that products that are consumed for their therapeutic, preventative, or performance or physique enhancing properties would not be recognized by an average consumer as ingredients.

In addition, a product that is marketed for its beneficial effects, and that is added to a food or beverage simply as a means of consuming it, would not be considered by an average consumer as an ingredient simply because it is ingested in this manner. For example, granulated or powdered fibre marketed for its beneficial effects to the digestive system is normally added to a glass (e.g., eight oz.) of juice, milk, or water as a means of consuming it. Nevertheless, in this instance, fibre is not an ingredient to be mixed with, or used in the preparation of, a beverage. Alternatively, fruit punch crystals are mixed with water to form a liquid that would commonly be regarded by an average consumer as a "beverage" since consumers would acknowledge that the fruit punch is usually consumed to quench thirst or for enjoyment.

The criteria used to determine whether a product is a food or beverage can also be applied to products used as ingredients.

Bulk Sales

In this case, the oils in question are sold in bulk form. The labeling on the bulk containers shows basic identifying information (e.g., product, weight, etc.), but contains very little other information that is typically used when applying the criteria in the policy. For example, the labels on the bulk containers do not contain any information as to the therapeutic or preventative effects, if any, of the oils, amounts to be consumed, restrictions on who may use the oils or under what conditions the product should not be used, etc. You made some representations in the case of pumpkin and borage oils and provided some documentation from other sources on these oils and on flax oil.

With respect to packaging/format, you sell your oils only in bulk in drums.

As for marketing, you do very little marketing.

Given the limited information available in this case on the use of these oils as indicated by the labelling, package/format, and marketing, further information was obtained from the Internet websites of other manufacturers and sellers of these oils, particularly as to their uses as ingredients by final consumers.

Canola Oil

Canola oil is a zero-rated ingredient. Canola oil is a commonly used vegetable oil similar in use to corn oil, olive oil, and other traditional culinary oils. The web site of the Canola Council of Canada states the following:

"Canola oil is one of the healthiest and most versatile cooking oils available to home cooks and professional chefs alike. It is light, clear and mild, making it ideal for cooking, fondues, stir-frying, baking, salads and marinades."

Canola oil is also used by food manufactures as an ingredient in many types of foods.

Canola oil is occasionally sold in capsule form. In this format, it would not be zero-rated, since products in capsule form are generally considered dietary supplements. However, based on the research conducted and information provided, the canola oil can be zero-rated when sold in bulk, since its ordinary use is as an ingredient and cooking oil.

Flax Oil

Flax oil is not as commonly used as a regular ingredient as is canola oil. However, flax oil sold in bottles at the retail level is often used on salads and in marinades, sauces and dips. The uses of flax oil as an ingredient (other than high temperature cooking) are similar to the uses of other common vegetable oils. Flax oil may be sold in capsule form as a dietary supplement, in which case it would not be zero-rated. However, based on the research conducted and information provided, the flax oil can be zero-rated when sold in bulk, since it has an ordinary use as an ingredient.

Pumpkin Oil

Pumpkin oil is promoted for its nutritive value and is often sold in capsule form as a dietary supplement. However, as part of the trend towards selecting food, beverages and ingredients based on their high nutritive value, pumpkin oil is also promoted as a healthy alternative to more traditional oils. Pumpkin oil is also recognized for its flavourful taste. Sellers at the retail level promote pumpkin oil as a product that can be taken on its own in small doses (1 or 2 tablespoons) or as an ingredient. Information from various websites indicates this:

•   recipes were found using pumpkin oil as an ingredient in cooking;

•   a product list described as "Artisan Crafted Culinary Food Oils" that includes pumpkin seed oil;

•   a product list that includes pumpkin seed oil and advises that it contains a high content of both essential fatty acids which makes it a highly nutritious and valuable oil; also that it is good with all salads especially green leaf and potato salads;

•   a mail order catalogue for healthy eating listing pumpkin seed oil, canola oil, roasted pumpkin seed butter, whole flax seeds, etc;

•   a list of gourmet oils that includes pumpkin seed oil and a pesto recipe using pumpkin seed oil;

•   a product list showing pumpkin seed oil under "Artisan Oils" - suggests "stir it into pesto for a boldly different flavour statement" and also lists "nutritional facts" similar to what you would see on a food label where information is provided on calories per serving, fat content, protein content, etc.;

•   a description of pumpkin oil as having "a nutty aroma and flavour that compliments just about any meal" with recipes.

Based on this research, pumpkin oil can be considered an ingredient. At the retail level, pumpkin oil sold in capsules would not be zero-rated as per our policy. However, in bottled form, there is evidence of its use as an ingredient in various foods (salads, sauces, etc.) and for low heat cooking. It cannot be said that its only use as an ingredient is as a means of consuming the product. In other words, it enhances the "flavour, texture or appearance of the final product" and thus qualifies as a zero-rated ingredient.

Borage Oil

In the case of borage oil, its overwhelming use is as a dietary supplement, based on the research conducted. It is sold in both capsule and bottle format, similar to the above oils. However, its promoted use in bottled form indicates that it is still a dietary supplement. A number of suppliers of bottled borage oil suggest that it be taken by the teaspoonful. Some of them suggest it can be added to salads, which indicates a use as an ingredient. One suppler also suggests mixing it with yogurt, cottage cheese, oatmeal or used in blended beverages and protein drinks. However, there were no other suggestions for its use as an ingredient to prepare a new food item (subject to being mixed with other oils, as discussed below). Unlike pumpkin oil, there were no suggestions that it be used to make dips or sauces or pasta toppings. It is not recommended as a cooking oil. This suggests that its use on salads or mixing with yogurt, etc., is a way of consuming the oil, rather than as an ingredient for salad dressing or other food in order to enhance the flavour, texture or appearance of the final product. Borage oil has very little scent, according to one website. The same web site actually promotes its particular brand of borage oil for topical use only and not to be taken internally. Another website lists borage oil in its Body Care section of products.

Borage oil is promoted for its health benefits. It is the richest source of gamma linolenic acid. The web site of the National Centre for Agri-Food Research in Medicine lists numerous therapeutic qualities of borage oil. The same web site also states "borage oil is taken as a nutritional supplement and is not normally used as a food ingredient." Another web site lists the many therapeutic benefits of borage oil and suggests borage oil may be taken with food, as opposed to using it as an ingredient in food. A number of other web sites contained similar information.

While the other three oils are also promoted for their health benefits, it is noted that they are also used as ingredients to substitute for other more traditional oils in the making of other food items, and not just as something that can be taken "with" food.

Borage oil is sometimes mixed with flax or other oils. Some web sites show flax oil blended with borage oil for optimum omega fatty acids. These mixed oils are promoted for uses similar to pure flax oil. You also state that borage oil could be used to make borage oil powder used in the making of granola bars for example, or as a substitute for flour. However, you were not able to provide any further information or references on the use of borage oil as an ingredient in the manufacturing of other foods.

Based on the research and the very limited evidence of the use of borage oil as an ingredient, it is not zero-rated, since it is used substantially as a dietary supplement and is not commonly used as an ingredient in a food or beverage. Therefore, as a general rule, borage oil is taxable at 7 per cent or 15 per cent when sold in the harmonized provinces of Nova Scotia, New Brunswick or Newfoundland and Labrador.

Since borage oil is not zero-rated, it is subject to tax when imported into Canada.

As you may be aware, products that are exported for sale are zero-rated if the requirements for zero-rating set out in Part V of Schedule VI to the Act are met.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-7909.

Yours truly,

Gunar Ozols
Goods Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

2005/06/08 — RITS 58732 — Taxable Benefits