23 June 2006 GST/HST Interpretation 78986 - XXXXX Joint Venture

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, and the accompanying samples, on behalf of your client, XXXXX, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to supplies of XXXXX Herbal Tea ("Product A") and XXXXX Tea ("Product B").

All legislative references are to the Excise Tax Act (ETA) and the regulations therein, unless otherwise specified.

The Minister of Finance announced in the Federal Budget of May 2, 2006, a proposal to reduce the rate of the GST and the federal portion of the HST by 1%, effective July 1, 2006. The general rule is that the rate of GST will be reduced from 7% to 6% and the rate of the HST from 15% to 14% on supplies for which the GST/HST is paid on or after July 1, 2006, without having become payable before that date. Specific transitional rules apply to certain supplies, for example, real property. For more information on the transitional rules for the reduction of the GST/HST rate, please refer to Reduction in the Rate of the GST/HST - Questions and Answers (http://www.cra-arc.gc.ca/agency/budget/2006/gstrateqa-e.html) on the CRA Web site.

Statement of Facts

Our understanding of the facts is as follows:

Product A

Product A is packaged in a XXXXX box of XXXXX tea bags XXXXX. Each tea bag contains XXXXX.

The product literature states: XXXXX.

XXXXX:

•   XXXXX;

•   XXXXX;

•   XXXXX;

•   XXXXX;

•   XXXXX;

•   XXXXX;

•   XXXXX; and

•   XXXXX.

Product B

Product B is packaged in a XXXXX box of XXXXX tea bags XXXXX. Each tea bag contains XXXXX.

The product literature states: XXXXX.

•   XXXXX.

•   XXXXX.

•   XXXXX.

•   XXXXX.

Ruling Requested

You would like to know if Product A and Product B are zero-rated for GST/HST purposes.

Ruling Given

Based on the facts set out above, we rule that supplies of Product A and Product B are zero-rated.

This ruling is subject to the qualifications in GST/HST Memorandum 1.4, Goods and Services Tax Rulings. We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal, that no future changes to the ETA, regulations or our interpretative policy affect its validity, and all relevant facts and transactions have been fully disclosed.

Explanation

Generally, every recipient of a taxable supply made in Canada shall pay tax calculated at the rate of 7% on the value of the consideration for the supply, or 15% in a participating province, unless the supply is zero-rated, pursuant to section 165 of the ETA. (As noted above, these rates will be reduced to 6% and 14% effective July 1, 2006.) The tax rate in respect of a zero-rated supply is 0%, where a zero-rated supply is a supply that is included in Schedule VI to the ETA.

Under Part III of Schedule VI to the ETA, certain supplies of basic groceries are zero-rated. 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), other than supplies included in paragraphs (a) to (r) of that section. Supplies of Products A and B are not within any of paragraphs (a) to (r) of section 1 to Part III of Schedule VI.

Product A and Product B are labelled as herbal teas, and include tea as an ingredient. It is the Canada Revenue Agency's position that supplies of all products that are labelled as tea (including tea, herbal tea, tisane and ice tea), and that are not within any of paragraphs (a) to (r) of section 1 to Part III of Schedule VI, are zero-rated regardless of ingredients or any claims made on the label or in the advertising.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (613) 957-8253.

Yours truly,

Jacqueline Russell
Goods Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

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