Friday, August 16, 2013

A Taxing Issue - 591 mL Water bottles?

Get your calculator out! It's tax time!


Going for a drive after work on a hot day, I decided to buy some water at a gas station. Usually, I'm not a fan of bottled water, but coming straight from a job site, and not wanting a soda, there was no choice.

Somehow at the cash register, my 591 mL bottle which was $1.70 became almost the same price as a 1L bottle at $1.99. The reason? Sales tax applied to the water bottle. The gas station attendant told me that for quantities under 1L there is sales tax.

Yes, in Canada they put tax on water.

You see "Food products sold for human consumption are not taxable. However, for [tax] purposes, food products are different from prepared foods, snack foods and soft drinks."

Obviously, everyone knows that water under 1L is a "snack food" while water above 1L is a "food product".

You may also be interested to know that "non-carbonated fruit drinks containing 25 per cent or more natural
fruit juice" and "tea, including fruit flavored and/or sweetened crystals, and canned and bottled iced tea" are "exempt food items" and not subject to tax.

I hope you agree with me that this is completely ridiculous, arbitrary and makes things more complicated for the consumer and merchant.

Well wait just a minute, the sales taxes in Ontario were changed from a provincial tax to a harmonized sales tax. For HST, there is no tax on water over 600 ml., since 599ml is obviously more of a snack water, rather than food water. Unfortunately I didn't keep my receipt, so shame on me, but a gas station attendant can be forgiven for not keeping up with this complexity.

But wait, it gets even more complicated, consider this from the Federal guideline for HST:

Mr. B goes to the grocery store and buys two 591 mL 
bottles of unflavoured and non-carbonated brand W water, 
which he takes from the cooler one at a time. The next day 
Mr. B goes to the store and buys a two-pack of the 591 mL 
size of the same brand of water, sealed together in a 
plastic wrap by the manufacturer. 

In this example, Mr. B’s purchase of two bottles of brand 
W water on the first day is taxable because they were not 
packaged together by the manufacturer. Even though the 
bottles were purchased at the same time, two or more 
single-serving-sized bottles of water must be packaged 
together by the manufacturer to be zero-rated. 

Mr. B’s purchase of the two-pack of water on the second 
day is zero-rated because the two single-serving-sized 
bottles of water were packaged together by the 
manufacturer. 

So a 2-pack of 591 ml water is tax free, but two singles aren't? And water with 7% fruit juice of any size is taxed since the fruit part is under 25%.

Of course, each non-HST provinces treats this slightly different. I've tried to wade through the details of what is tax-free by province below:

Alberta - 600ml and larger, smaller pack sizes face 5% federal tax
British Columbia - 600ml and larger face no tax, 5% federal tax applied to smaller pack sizes
Manitoba - 600ml and larger, 5% federal tax applied to smaller pack sizes
New Brunswick, Newfoundland, Nova Scotia, PEI - 600ml and larger, smaller pack sizes face full sales tax (13-14%)

Ontario - 600ml and larger, smaller pack sizes face full sales tax
Quebec - 600ml and larger, smaller pack sizes face full sales tax
Saskatchewan -  600ml and larger, 5% federal tax applied to smaller pack sizes
Yukon, Nunavut and Northwest Territories - 600ml and larger, smaller pack sizes face 5% federal tax

So, make sure you practice proper tax planning with tax sheltered retirement investments, and 600+ ml bottles of water.

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