If you have ever taken a closer look at your grocery or fast-food bill you may have noticed the calculation of GST/HST is not always obvious. There are often various tax codes and rates embedded within the receipt. Let’s look at how GST/HST applies to various categories of food and beverage, and how you can distinguish between them.
As a starting point, the Excise Tax Act (the “Act”) dictates when GST/HST is applied to supplies made in the course of commercial activity. Assuming your favourite grocer or restaurant is engaged in commercial activity, GST/HST applies to the items purchased, unless there is a “zero-rating” or exempting provision that says otherwise. Schedule VI, Part III of the Act states that the supply of basic or “staple” groceries, which includes most supplies of food and beverages marketed for human consumption (including sweetening agents, seasonings and other ingredients to be mixed with or used in the preparation of such food or beverages), is zero-rated or taxable at a rate of 0%.
What is a Basic or Staple Grocery?
The rule that exempts food and drinks for human consumption from taxes has many exceptions for specific types of food and drinks that don’t qualify for this exemption. For those that don’t qualify (as listed below), GST/HST usually applies at the correct rate, depending on the province where they’re sold. The following in a list of just a few categories where GST/HST applies:
- Alcoholic beverages;
- Carbonated beverages;
- Fruit beverages (less than 25% real fruit juice);
- Candies;
- Bars;
- Snack foods;
- Food or beverages heated for consumption;
- Salads (not sealed);
- Sandwiches (other than frozen); and
- Catered food and beverages.
The Canada Revenue Agency (the “CRA”) has issued detailed commentary on items that fit into each of these categories in GST/HST memorandum 4.3. Below is a small sample of a few areas of interest to whet your appetite.
Can a muffin or pastry be a basic grocery?
The CRA’s position comes down to the quantity in question. They state that basic groceries should typically be purchased in bulk. Specifically, items such as cakes, muffins, pies, pastries, tarts, cookies, doughnuts, brownies, croissants with sweetened filling or coating, or similar products are taxable where:
- they are pre-packaged for sale to consumers in quantities of less than six items each of which is a single serving, or
- they are not pre-packaged for sale to consumers and are sold as single servings in quantities of less than six.
When is food considered heated for consumption?
The CRA generally takes the position that foods sold hot (from heated cabinet, separate take out counter, or heated at point of purchase) are not a basic grocery and therefore are subject to GST/HST. However, foods have been previously cooked but are sold unheated or refrigerated should be zero-rated or not taxable.
For example, a hot soup may be subject to HST whereas a refrigerated soup may be zero-rated.
What if my salad is not mixed or my sandwich is not heated?
Salads and sandwiches fall under entirely different categories from the above, although a similar approach still applies.
- Salads that are ready for consumption are generally taxable where they are not canned or vacuum sealed. Pre-packages salad kits that contain all of the ingredients for a salad but are not mixed may not be considered a salad, and therefore may be zero-rated.
- Sandwiches that are not frozen are taxable. Both refrigerated and hot sandwiches are considered suitable for consumption and taxable for GST/HST.
Ontario Point-of-Sale Rebate
For those in Ontario, the analysis becomes more complicated by the Point-of-Sale Rebate on Prepared Food and Beverages. For food and beverages sold in Ontario that are ready for immediate consumption, a rebate is available where the total price, excluding HST, is not more than $4 for all qualifying prepared food and beverages sold. The rebate is available regardless of where the food and beverages are consumed.
The rebate amount is equal to the provincial part of HST, which in this case is 8%. The rebate can either be credited by the retailer at the point of sale (ie: at the register) or filed by the consumer through an application with the CRA.
Although it is becoming less common that the cost of food and beverages fall under $4, this was an important rebate offered to consumers when Ontario harmonized with the HST system.
Closing Comments
Although it sounds straightforward, the determination of how GST/HST applies to food and beverages requires careful consideration on a case-by-case basis. Many foods can be purchased in a variety of forms, various packaging, and in different settings, all of which need to be considered in detail before the transaction can be zero-rated. Unfortunately for consumers, retailers will often err on the side of caution and charge the tax in cases of uncertainty.
For assistance with GST/HST, contact us and ask to speak to a member of our HST team.
