29 March 2001 GST/HST Ruling 30239 - Tax Status of Bar

Dear XXXXX:

This is in reply to your letter of January 17, 2000, which was initially sent to our XXXXX office, but has subsequently been transferred to this office for direct reply. You asked about the application of the Goods and Services Tax ("GST")/Harmonized Sales Tax ("HST") to the XXXXX flavour of XXXXX bars. Our comments are set out below.

Please accept our apologies for the delay in replying to your letter.

Statement of Facts

Our understanding of the facts of this case is as follows:

1. A weight management product, XXXXX bars ("bars") is imported into Canada.

Information provided to us on this product indicates that it is formulated with a precise ratio of protein, carbohydrate and fat that triggers the burning of stored body fat for a number of hours after eating. They are advertised as either a meal or a snack.

2. The ingredients in the XXXXX flavour of the bar include honey, soy protein isolate, roasted peanuts, high fructose corn syrup, sugar and cocoa butter.

Ruling Requested

Is the XXXXX flavoured bar zero-rated as a meal replacement, pursuant to section 1 of Part III of Schedule VI to the Excise Tax Act ("the Act") and the administrative policy of the Canada Customs and Revenue Agency ("CCRA")?

Ruling Given

Based on the facts set out above, we rule that the XXXXX flavoured bar is taxable at the rate of 7% GST (or 15% HST, as applicable).

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 our 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). 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.

Section 1 of Part III of Schedule VI to the Act zero-rates supplies of food or beverages for human consumption ("basic groceries") and 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. In addition, the administrative policy on basic groceries is set out in Chapter 4.3 of the GST Memoranda Series, titled Basic Groceries.

It is the administrative position of the CCRA that meal replacements (bars or drinks) are zero-rated as basic groceries. For the purposes of its administrative position, the CCRA has adopted the definition of "meal replacement" as found in the Regulations to the Food and Drug Act. Further, the CCRA requires that the labeling requirements for meal replacements under the Regulations to the Food and Drug Act must also be met. Pursuant to the definition, a meal replacement has minimum caloric requirements and specific fat content and vitamin and mineral requirements.

The exception in paragraph 1(e) of section 1 of Part III of Schedule VI to the Act excludes from zero-rating supplies of candies, confectionary that may be classed as candy, or any goods sold as candy, 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.

Our review of the material describing the XXXXX flavoured bar leads us to conclude that they are taxable at 7% GST (or 15% HST, as applicable), because they are excluded from zero-rating pursuant to paragraph 1(e). We can also advise that the bar does not qualify as a zero-rated meal replacement.

As stated in the facts, the bar is imported into Canada. Division III of the Act provides that GST/HST is payable on dutiable goods (under the Customs Act) imported into Canada. Section 6 of Schedule VII to the Act provides, in part, that goods included in Part III of Schedule VI (i.e. zero-rated basic groceries) are non-taxable importations. Since the XXXXX bar is excluded from Part III of Schedule VI, it is taxable on importation into Canada.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-9585.

Yours truly,

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