19 November 1998 GST/HST Ruling HQR0001033 - Application of the GST/HST to Nutritional Supplements

Dear XXXXX

Thank you for your letter of September 3, 1997, with attachments, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to supplies of XXXXX. We apologize for the delay in our response.

Statement of Facts

Our understanding of the facts is as follows:

1. XXXXX, has recently introduced a new product called XXXXX[.]

2. XXXXX come in two flavours: XXXXX[.]

3. XXXXX qualify as nutritional supplements, but not meal replacements, under the Food and Drugs Act and corresponding regulations.

4. XXXXX are sold as nutritional snacks intended to "... XXXXX[.]

5. XXXXX[.]

6. You attest that the fruit content of each XXXXX is approximately XXXXX, although, according to the list of ingredients, the fruit content may be as high as XXXXX calculated as follows:

XXXXX
XXXXX
XXXXX
XXXXX
XXXXX
XXXXX
XXXXX
XXXXX
XXXXX
XXXXX

7. The XXXXX flavoured XXXXX contain a significant amount of sweeteners, with high maltose and high fructose corn syrup listed as the principal ingredients, together making up XXXXX of the content of each bar. XXXXX a key ingredient in the manufacture of XXXXX, is listed as the fourth ingredient.

8. The anticipated sales volume for XXXXX by type of retail outlet can be expressed as follows:

XXXXX

9. XXXXX are sold in the pharmacy section of grocery stores. They are sold individually from merchandising cartons containing XXXXX bars each. The recommended retail price is XXXXX each.

Ruling Requested

Supplies of both types of XXXXX are zero-rated for GST/HST purposes under section 1 of Part III of Schedule VI to the Excise Tax Act.

Ruling Given

Based on the facts set out above, we rule that supplies of both XXXXX are subject to the GST at 7%, except supplies made in Nova Scotia, New Brunswick and Newfoundland, which are subject to the HST at 15%.

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 audit, objection, or appeal; that there are no relevant changes in the future to the Excise Tax Act, or to departmental interpretative policy; and that you have fully described all necessary facts and transaction(s) for which you requested a ruling.

Explanation

Taxable supplies of goods and services made in Canada are generally subject to tax at 7% (or 15% where the supplies are made in one of the provinces participating in the HST). Nevertheless, "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 Excise Tax Act.

Section 1 of Part III of Schedule VI, entitled "Basic Groceries", zero-rates supplies of food or beverages for human consumption, as well as many ingredients mixed with or used in the preparation of such food or beverages, unless one of the exceptions set out in paragraphs 1(a) through 1(r) applies.

Paragraph 1(e) excludes supplies of "candies, confectionery that may be classed as candy, or any goods sold as candies, such as candy floss, chewing gum and chocolate, whether naturally or artificially sweetened, and including fruits, seeds nuts and popcorn when they are coated or treated with candy, chocolate, honey, molasses, sugar, syrup or artificial sweeteners". Further, paragraph 1(l) excludes supplies of "fruit bars, rolls or drops or similar fruit-based snack foods".

In our view, supplies of XXXXX fall under paragraph 1(e), and supplies of XXXXX fall under either paragraph 1(e) or 1(l). Consequently, supplies of both types of bars are excluded from the application of section 1 of Part III of Schedule VI and are therefore subject to tax at 7% (or 15% where the supplies are made in a participating province).

Should you have any further questions or require clarification on the above matter, please do not hesitate to call me at (403) 231-4104.

Yours truly,

John W. Smith
Goods Unit
General Operations & Border Issues Division
GST/HST Rulings and Interpretations Directorate