25 January 2007 GST/HST Interpretation 85536 - Applicability of interest and penalties to assessments

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 XXXXX Bars (the Product).

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

Statement of Facts

Our understanding of the facts is as follows:

1. XXXXX recently launched the Product that is packaged for retail grocery store customers in a carton containing XXXXX bars.

2. The Product's ingredients are: XXXXX.

3. The labelling on the carton describes the Product as: XXXXX. The labelling includes a picture of the bar XXXXX.

4. The Product is not labelled as a cereal bar and the Product is not sold primarily as a breakfast cereal.

Ruling Requested

You would like to know how the GST/HST applies to supplies of the Product.

Ruling Given

Based on the facts set out above, we rule that supplies of the Product are taxable at 6% GST, (or 14% HST as applicable) pursuant to section 165.

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 6% on the value of the consideration for the supply (or 14% in the participating provinces of Nova Scotia, New Brunswick, and Newfoundland and Labrador) unless the supply is zero-rated. Zero-rated supplies are included in Schedule VI. The tax rate in respect of a zero-rated supply is 0%.

Under Part III of Schedule VI, certain supplies of basic groceries are zero-rated. Section 1 of Part III of Schedule VI, 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.

In particular, paragraph 1(h) of Part III of Schedule VI excludes from zero-rating granola products, but not including any product that is sold primarily as a breakfast cereal. Granola bars generally have a mixture of cereals (e.g., rolled oats or rice) and honey and/or syrup as main ingredients. The ingredients are not processed to a great extent, thereby retaining the distinct character of each ingredient within the bar. Therefore, the Product is considered to be a granola bar for GST/HST purposes.

Cereal bars, on the other hand, usually have ingredients similar to granola bars, but the ingredients in cereal bars are processed to a greater extent resulting in a muffin-like texture. Cereal bars are treated as a product similar to sweetened baked goods for GST/HST purposes. Please refer to the topic "Bars" on page 9 of the January 2007 version of GST/HST Memoranda Series 4.3, Basic Groceries, available on our Web site, for further information regarding the application of GST/HST to various products labelled and packaged as bars.

As the Product is considered to be a granola bar that is not sold primarily as a breakfast cereal, it falls under the exclusion in paragraph 1(h) of Part III of Schedule VI, and is taxable at 6% GST or 14% HST, as applicable.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-954-5124.

Yours truly,

Cheryl McKenzie
Goods Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

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