26 September 2001 GST/HST Interpretation 31110 - Tax Status of Hemp Seed

Dear XXXXX:

This is in reply to your letter of May 4, 2000, requesting that we reconsider the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to supplies of hemp seed. Your letter was originally sent to our XXXXX Tax Services Office, but was subsequently transferred to this office for direct reply. Our comments are set out below.

Information Provided

1. XXXXX a GST/HST registrant, is a bulk hemp food processor. XXXXX contracts for the production of hemp seed with farm producers to supply its processing facility. XXXXX contracted the production of approximately XXXXX to XXXXX acres in the year 2000, which is expected to yield XXXXX lbs of seed. The production of hemp is primarily for manufacturing bulk hemp food products and hemp food ingredients.

2. The seed is processed into a variety of hemp food products. For example, hemp seed oil is a product which has multiple uses, such as cosmetics, automotive paint products, and for use in making salad dressings. XXXXX produces all of its hemp seed oil as food grade oil. It is sold in 4 litre jugs, 20 litre pails and 200 litre drums. Hulled hemp seed, hulled hemp seed fines, toasted & roasted hemp seed, cracked or sterilized hemp seed and hemp seed flour and protein powders are products that are an additive or an ingredient to be used in food for human consumption.

3. XXXXX will also produce animal feed supplements from by-products known as hemp seed cake and hemp seed screenings. These products will be marketed as animal feed supplements and their intended use is for livestock, commercial fish feeds, as well as pet foods. The feed supplements and commercial fish feeds are not included in the Feed Regulations. All these products are sold by the ton.

4. XXXXX may also provide additional value-added custom processing such as gelcap encapsulation of hemp seed oil as a vitamin supplement. It may also be producing a powdered vitamin supplement in capsule form.

Interpretation Requested

What is the GST/HST status of bulk hemp seed (also referred to in your letter as raw input seed) which you purchase from farm producers ?

Interpretation Given

Based on the information provided, we advise that the supply of bulk hemp seed is zero-rated (taxable at 0%) on sales for which consideration (i.e. payment) becomes due after April 12, 2001 or is paid after that date without having become due or on importations after April 12, 2001, provided the sale or importation meets all requirements set out in either of the proposed section 3.1 of Part IV of Schedule VI or the proposed section 12 of Schedule VII to the Excise Tax Act ("the Act").

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). However, 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 Act.

Also, GST does not apply to goods classed as non-taxable importations, pursuant to Schedule VII of the Act. Non-taxable importations include goods that are zero-rated, pursuant to Part IV of Schedule VI.

In a press release dated April 12, 2001, the Department of Finance announced that it proposes to amend Part IV of Schedule VI and Schedule VII of the Act by adding provisions that would zero-rate the sale or importation of the grain or seeds, or the mature stalks (i.e. straw), of industrial hemp plants. This treatment would apply where their sale or importation is in accordance with the Controlled Drugs and Substances Act or is excluded from the application of that Act.

Industrial hemp refers to varieties of the hemp plant that contain very low concentrations of the psychoactive component THC. The commercial cultivation of industrial hemp in Canada was re-introduced in 1998 and is now permitted to be grown under licenses and authorizations issued by Health Canada.

The press release indicated that the grain or seeds of most other plant crops, and primary products such as fodder, straw and hops, can be purchased and sold by farmers on a tax-free basis and that the amendment would bring the GST/HST treatment of industrial hemp plant products into line with that of other farm products.

These proposed amendments apply to sales for which all or part of the consideration (i.e. payment) becomes due after April 12, 2001, and to importations after April 12, 2001.

For your information, the proposed amendments, are set out below.

For Sales:

Part IV of Schedule VI to the Act is amended by adding the following after Section 3:

3.1 A supply of grain or seeds, or mature stalks having no leaves, flowers, seeds or branches, of hemp plants of the genera Cannabis, if

(a) in the case of grain or seeds, they are not further processed than sterilized or treated for seeding purposes and are not packaged, prepared or sold for use as feed for wild birds or as pet food;

(b) in the case of viable grains or seeds, they are included in the definition of "industrial hemp" in section 1 of the Industrial Hemp Regulations made under the Controlled Drugs and Substances Act; and

(c) the supply is made in accordance with that Act, if applicable.

For importations:

Schedule VII to the Act is amended by adding the following after section 11:

12. Imported grains or seed, or imported mature stalks having no leaves, flowers, seeds or branches, of hemp plants of the genera Cannabis, if

(a) in the case of grains or seeds, they are not further processed than sterilized or treated for seeding purposes and are not packaged, prepared or sold for use as feed for wild birds or as pet food;

(b) in the case of viable grain or seeds, they are included in the definition of "industrial hemp" in section 1 of the Industrial Hemp Regulations made under the Controlled Drugs and Substances Act; and

(c) the importation is in accordance with that Act, if applicable.

The foregoing comments represent our general views with respect to the proposed amendments to the Act as they relate to the subject matter of your letter. Any change to the wording of these proposed amendments or any future proposed amendments to the Act, if enacted, could have an effect on the interpretation provided herein. These comments are not rulings and, in accordance with the guidelines set out in section 1.4 of Chapter 1 of the GST/HST Memoranda Series, do not bind the Canada Customs and Revenue Agency with respect to a particular situation.

For your convenience, find enclosed a copy of section 1.4 of Chapter 1 of the GST/HST Memoranda Series.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at 952-9585.

Yours truly,

Pauline Greenblatt
Goods Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

Enclosed: GST/HST Memoranda Series, Chapter 1, Section 1.4