26 August 2003 GST/HST Ruling 40719 - Status of Certain Food and Beverages With Therapeutic Claims

Dear XXXXX:

Thank you for your XXXXX (with attachments), concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the transactions described below. Additional information was obtained by XXXXX XXXXX of the XXXXX GST/HST Rulings Centre in a telephone conversation.

Statement of Facts

Our understanding of the facts, the transactions, and the purpose of the transactions is as follows:

1. XXXXX sells food and health care products to the public.

2. XXXXX is registered for GST/HST purposes.

3. XXXXX sells the following products under the product label XXXXX:

-    XXXXX ("Product A")

-    XXXXX ("Product B")

-    XXXXX ("Product C")

-    XXXXX ("Product D")

-    XXXXX ("Product E") and

-    XXXXX ("Product F").

4. Products A, B, C and D provide the following preparation instructions on their packaging labels:

XXXXX

5. Products C and D have an additional preparation step that requires XXXXX Products A, B, C and D can also be cooked with XXXXX[.]

6. Products A, B, C and D may be prepared as a tea, by XXXXX[.]

7. Products E and F provide the following preparation instructions on their packaging labels:

XXXXX

8. The labels on all of the products provide information on therapeutic claims. They are said to XXXXX. Each product also makes a more specific claim, such as XXXXX etc. The labels on all of the products state that they XXXXX[.]

9. All of the products are sold in the vitamin section of XXXXX[.]

Transactions

XXXXX sells the products to the public.

Ruling Requested

What are the GST/HST and provincial sales tax (PST) statuses of the above-mentioned products?

Ruling Given

Based on the facts set out above, we rule that the supply of Products A, B, C and D are taxable at 7 per cent (GST) or 15 per cent (HST). The supply of Products E and F are zero-rated (i.e., taxable at 0 per cent).

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

Section 1 of Part III of Schedule VI to the Excise Tax Act (the "ETA") zero-rates supplies of basic groceries. This includes supplies of "food" and "beverages" marketed for human consumption, as well as "sweetening agents, seasonings and other ingredients to be mixed with or used in the preparation of such food or beverages". Certain foods and beverages (e.g., candies, chips, carbonated beverages, etc.) are excluded from zero-rating in paragraphs 1(a) to (r).

However, not all products that can be ingested are considered to be a food or beverage. The words "food" and "beverages" are not defined in the ETA. Policy Statement P-240, Application of GST/HST to Products Commonly Described as Dietary Supplements (a copy of which is enclosed), addresses the question of whether products commonly described as "dietary supplements" are zero-rated as foods or beverages. Consumers usually consume food for enjoyment or to allay hunger, while beverages are usually consumed for enjoyment or to quench thirst. In general, food and beverages are consumed to sustain or maintain life, to allay hunger or thirst, or for enjoyment, rather than for therapeutic or preventative effects (e.g., to correct actual or perceived health problems) or to achieve specific beneficial effects related to performance or physique. Products that are labelled or marketed as products to be consumed to facilitate the intake of certain ingredients (nutritive or otherwise) or which place an emphasis on claims relating to the benefits of the product, for example, therapeutic or preventive effects, or enhancing performance or physique, are not considered to be products that an average consumer would ordinarily purchase in the course of buying food or beverages (e.g., products in pill, tablet, or capsule format). The policy looks to a product's labelling, packaging/format and marketing to determine whether it is a dietary supplement.

The term "ingredients" is also not defined in the ETA. A product is an ingredient if it adds to the flavour, texture or appearance of the final product. Furthermore, the final product itself must be a food or beverage. A product that is marketed for its beneficial effects, and that is added to food or water simply as a means of consuming it, is not a zero-rated ingredient.

The policy does not apply to meal replacements and nutritional supplements (as defined in regulations to the Food and Drugs Act). None of the products is a meal replacement or nutritional supplement.

With respect to Products A, B, C and D, in order to be zero-rated, they must be either foods or ingredients to be mixed with or used in the preparation of food. The following are factors indicating that they are neither foods nor ingredients to make food:

-    the labels on these products describe them as a XXXXX,

-    they are described as having specific therapeutic or preventative effects,

-    Product D promotes weight loss,

-    the names of these products indicate therapeutic purposes,

-    there are warnings that these products should not be used by certain people, and

-    they are shelved in the vitamin section.

This indicates that the purposes of Products A, B, C and D are to remedy ailments or deficiencies in a person's diet.

Please also note that paragraph 23 of Memoranda Series Chapter 4.3, Basic Groceries (a copy of which is enclosed), states that tonics are not zero-rated.

With respect to Products E and F, it is true that they are also described as tonics and also make therapeutic claims. However, the distinguishing feature of these products is the manner in which they are labelled, prepared and consumed. They are identified as "tea". Unlike Products A, B, C or D, they are prepared using only boiling water. They can be consumed hot or cold. It is currently our position that supplies of all products that are characterized as tea, regardless of flavour or ingredients (i.e., whether real tea, herbal tea, fruit flavoured tea, etc.) are zero-rated. A product that advertises or labels itself as a tea is zero-rated.

Please note that our administrative position concerning the application of GST/HST to tea is under review and may be subject to change in the future.

In addition, you enquired as to the tax status of the Products for purposes of the PST. Please note that the Canada Customs and Revenue Agency does not have the responsibility to administer the PST and we recommend that your question be directed to your local XXXXX Ministry of Finance, Regional Sales Tax Office. The telephone number in the XXXXX area is XXXXX.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-7909.

Yours truly,

Gunar Ozols
Goods Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor