GST/HST Rulings and Interpretations
9th Floor, Tower C
25 McArthur Road
Vanier, Ontario
XXXXX K1A 0L5
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XXXXX
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File: 11850-2 (ges)
XXXXX Case: HQR0000010
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Dear XXXXX
Thank you for your memo of August 13, 1996 to Ken Syer concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to prepared cold meals and various other assorted food items. We apologize for the delay in responding. For the purposes of this letter I am assuming that all transactions take place in XXXXX and that therefore the HST is not applicable. The client, however, should be made aware of its potential HST obligations.
iIt should be noted that the analysis given below relating to the criteria concerning whether the prepared cold meals are being supplied under a contract for, or in conjunction with, catering services is provided in advance of the formal policy on the subject being finalized for the information of the district office only and is not to be repeated in the district office's response to the client or otherwise distributed to the public until such policy is formally released.
Interpretation Requested
In your memo you refer to a letter from XXXXX requesting an interpretation on behalf of their client (the "client") concerning whether the supply of pre-cooked cold meals is a zero-rated supply after the April 23, 1996 amendments to the Excise Tax Act (ETA). The relevant facts listed in this letter and its attachments are the following:
• The client's primary business is catering. Other activities include the meal program described below and the retail sale of deli-style foods. It is not a charity or a non-profit organization.
• Food is prepared and cooked on the client's premises, then individual meals are packaged and refrigerated.
• The customer orders a meal from a choice based on the menu for that day. The customer has a choice of main course, starchy vegetable, side vegetable and dessert.
• The individual meals are cold when delivered to the customers, who are primarily seniors.
• The customers reheat the meals themselves prior to eating them.
A sample menu was attached to the letter. This menu states that sandwiches may be delivered to the customer at the same time as a meal. In your memo you also state that the business is not a charity or a non-profit organization and the supply is not being made to a school authority, university or public college. In the letter below, the client is also referred to as "the caterer" or as "the catering business".
The letter from XXXXX also asked for an interpretation as to whether the supply of the following items are zero-rated:
1. baked goods, including pies and cakes;
2. pizzas, pre-cooked and sold cold;
3. meatballs and gravy;
4. prepared salads; and
5. perogies (by the dozen).
All of the above five items are sold on the premises of the business, in its deli-style retail section.
Interpretation Given
It is the Department's position that the pre-cooked cold meals are being supplied under a contract for catering services and thus GST must be collected on the supply of these meals pursuant to paragraph 1(o.5) of Part III of Schedule VI to the ETA. The tax status of the other food items listed is discussed below.
Part III of Schedule VI to the ETA zero-rates the supply of all food or beverages for human consumption except for the supplies listed in paragraphs 1(a) through 1(r) of Part III. Paragraph 1(o.5) removes from zero-rating all "food or beverages sold under a contract for, or in conjunction with, catering services".
Whether or not a particular supplier is supplying food or beverages under a contract for, or in conjunction with, catering services is a question of fact for each particular case. Thus, to make this determination, one must analyze the substance and reality (i.e. the facts and evidence) of the particular transaction. To determine whether a particular supply of food or beverages is being sold under a contract for, or in conjunction with, catering services, the following four criteria are examined:
1. the food or beverages are processed or arranged to the customer's specifications after the order for the food is placed and the food or beverages supplied to the recipient can be consumed either immediately or after the food is warmed up;
2. the food or beverages are delivered to or on behalf of the customer;
3. the food or beverages are supplied with some or all of the necessary amenities for either serving or consuming the food or beverages;
4. the consideration paid by the customer is based on a per person charge or a per serving charge.
In general, no one of these factors is regarded as being more important than any other factor. Similarly, these factors are not applied in a formulaic or inflexible manner. These factors are used as guidelines in order to help the Department interpret the facts of a particular case in order to make a determination as to whether or not catering services are being provided. Each factor is described in more detail below.
Although it is clear that there should be an initial presumption that supplies made by a catering business are taxable, it is important to note that not every supply made by a caterer will necessarily be a catering service as defined above. For example, many caterers operate stores which sell precooked cold or frozen foods that the customer buys off the shelf and takes home, where it is subsequently heated for consumption by the customer. The supply of such foods is not made in conjunction with, or under a contract for, catering services. Thus such a supply would be zero-rated for GST/HST purposes, unless it falls within any of the exemptions listed in paragraphs 1(a) through 1(r) of Part III of Schedule VI to the ETA. Similarly, a supply made by a non-caterer (e.g. a grocery store) may fall within the above definition of catering services and therefore be subject to GST or HST.
The following is a more detailed description of each of the four factors looked at to determine if catering services are being provided, along with their application to the present fact scenario.
1) The food or beverages are processed or arranged after the order is placed
The processing or arranging of food or beverages includes the cooking, heating, preparing, or arranging of a food or beverage by the establishment. This criteria, however, is only intended to capture situations where all or substantially all of the resulting food can be eaten either immediately or after being warmed up. No other processing of the food or beverages by the customer should be necessary. Thus the cutting or marinating of a piece of beef to a customer's specifications by a butcher, for example, would not, by itself, fall within this particular criteria.
Furthermore, simply packaging the food for sale after the customer has placed his or her order is not considered to be processing as described above. Thus placing donuts in a box for the customer would not satisfy this criterion. Placing the donuts on a serving platter, however, would satisfy this criteria as the donuts are being arranged on the platter by the supplier.
In the present fact scenario, after the customer places his or her order the individual components of the meal are arranged on a plate and the meal is refrigerated. The meal is delivered cold to the customer and the customer can consume the supplied meal after heating it up. Thus the food is arranged and processed after the order for the food is placed by the customer and the food can be consumed after being warmed up.
2) Delivery to or on behalf of the customer
One of the indicators of a catering contract is that the food is delivered to the customer, or to someone specified by the customer. Normally such delivery is made shortly before the food is to be consumed, so that the food is not normally stored on the recipient's premises for any considerable length of time. Where a company offers a particular product and it is the normal practice of the company to deliver it to the customer, this criterion is satisfied even if some of the customers pick up the product themselves.
Here the catering company normally delivers the meals to their customers shortly before the meals are to be consumed.
3) Amenities for either serving or consuming the food or beverages are supplied
Another indicator of a catering contract is that some or all of the necessary amenities for either serving or consuming the food or beverages are supplied with the food or beverages. Amenities for serving or consuming the food or beverages may include such things as cutlery, dishes, glassware, serving utensils, serving bowls, trays, serviettes, or napkins. Such amenities do not include, however, a disposable container that the food was delivered in, even if the food may be consumed directly from the container. In applying this criteria, it does not matter whether or not there is a separate charge for the supply or use of the amenities.
From the facts provided, it does not appear that the catering company provides any of the amenities needed to consume the food. The food is delivered in a disposable container, which is not considered to be an amenity as described above, even if the food may be consumed directly out of it.
4) The consideration is based on a per serving charge or a per person charge
The essential quality of this criteria is that the charge is based on the number of servings of food or beverage which is to be supplied. A per serving or per person charge is to be contrasted with a charge which is based on the mass or volume of food or on the number of prepackaged quantities. Thus a charge for "assorted appetizers for 12", a charge for a table d'hôte meal, or a charge for coffee for 20 persons would be captured by this provision. A charge, however, for 1 kilogram of shepherd's pie, 5 litres of coffee or two dozen dinner rolls would not be. A charge for a 500 gram box of prepared appetizers which are "recommended for serving 12" would also not be captured by this criteria. Where items are selected individually from a menu, the charge is considered to be a per person or per serving charge.
When applying this criteria, it does not matter if there are extra charges for such things as delivery, setup, cleanup, gratuities, et cetera. As long as the charge for the food or beverages is based on a per person or per serving amount then this criteria is satisfied.
In the present case, the customer makes a selection of individual items composing the meal from a menu of items that are available for that day. The customer is then charged a flat amount of XXXXX for the meal. The charge here is considered to be a per person or per serving charge because the customer is selecting items individually from a menu.
When the four factors described above are examined, it is clear that in the present fact scenario the catering company is supplying the meals under a contract for, or in conjunction with, catering services. Thus the supply of these meals is made pursuant to a catering contract and is subject to GST pursuant to paragraph 1(o.5) of Part III of Schedule VI to the ETA.
Sandwiches which are delivered at the same time as the meal would also be subject to GST. The supply of sandwiches (other than when frozen) is always taxable pursuant to paragraph 1(o.2) of Part III of Schedule VI to the ETA. The supply of sandwiches at the same time as a catered meal may also be taxable pursuant to paragraph 1(o.5) of Part III of Schedule VI to the ETA as being sold in conjunction with catering services. In determining whether or not the sandwiches are being sold in conjunction with catering services, the four criteria listed above must be examined in light of the nature of the business of the client.
The treatment of baked goods sold from the deli counter such as cakes and pies remains unchanged. They are zero-rated unless they are prepackaged for sale to consumers in quantities of less than six items each of which is a single serving, or they are not prepackaged for sale to consumers and are sold as single servings in quantities of less than six. Thus the sale of an entire 9-inch pie or an entire cake of a similar size would be zero-rated. See paragraph 1(m) of Part III of Schedule VI of the ETA.
Pizzas which are pre-cooked and sold cold from the deli counter of the business to be reheated at home by the customer would be a zero-rated supply.
The treatment of meatballs and gravy sold from the deli counter of the business would depend on whether they are sold hot or cold. If they are served cold to be reheated later off the premises by the customer, then they are zero-rated. If they are sold warm to the customer, then GST must be collected on their sale pursuant to paragraph 1(o) of Part III of Schedule VI of the ETA.
Previously, GST had to be collected on all sales of prepared salads. After the April 23, 1996 proposed amendments, GST must be collected on the sale of all prepared salads which are not canned or vacuum sealed. If the prepared salad sold from the deli-counter is canned or vacuum sealed then the sale of this salad is zero-rated. See paragraph 1(o.1) of Part III of Schedule VI of the ETA.
Again whether perogies sold by the dozen from the deli-counter of the business would be a zero-rated supply would depend on whether they are sold cold or warm for immediate consumption. If they are served cold to be reheated later by the customer, then they are zero-rated. If they are sold warm to the customer, then GST must be collected on their sale pursuant to paragraph 1(o) of Part III of Schedule VI of the ETA.
Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at 613 952-8253.
Yours truly,
Gregory Smart
A/Rulings Officer
Industries Unit
General Operations and Border Issues Division
GST/HST Rulings and Interpretations Directorate
Legal References: s. 1, Part III, Schedule VI to the Excise Tax Act
Reference: HQR0000010
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Originator's Desk Copy
NCS Subject Code(s) - I
Registration Number: 11850-2
. District Chief, Audit |
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