Grocery Store Tax: What Is And Isn't Taxed?

An comprehensive look at how taxes are calculated at the grocery store.

Recently one of the grocery stores near me was having a 2-day sale where no tax was being charged on any item. This got me to thinking: how much would you actually save at this kind of sale? Only certain items are taxed in the grocery store, so the savings could be less than you think. In order to figure this out I needed to understand the very complicated Canadian system of taxation on food.

The government's document on this is 35 pages long, so I will give you a breakdown of the vital information in this post. However, I would recommend reading it for yourself here. 

What Is Zero-Rated (0% Tax)?

In short, an item is zero-rated when tax does not apply to that item. I've tried to create a list of what is zero-rated and in doing so I observed some general tendencies. For one thing, the staples of life are zero-rated, probably because we can't live without them. Also, generally anything where you have to do some of the preparation is zero-rated. Items that are healthier for you like fruits and veggies are also not taxed. However, some things like doughnuts (in packages of 6 or more) aren't taxed, despite not being good for you. Buying 6 or more doughnuts? No tax. I'm not convinced doughnuts get healthier in bulk, so this is a bit odd to be sure. See why this is complicated? Here is a concise list of Zero-Tax items:

• Fresh, frozen, canned, and vacuum sealed fruits and vegetables
• Breakfast cereals
• Most milk products
• Fresh meat
• Poultry
• Fish
• Eggs
• Coffee beans
• Syrups, crystals and powders that are not fruit-flavoured
• Fruit juices and concentrate (if it is more than 25% juice by volume)
• Puddings and beverages that are for babies or are sold in muti packs of single servings prepackaged by the manufacturer
• Plain bottled water in manufacturers’ packages of two or more single serving bottles, or in a bottle that exceeds a single serving
• Baking ingredients (chocolate chips, icing, cocktail cherries, etc...)
• Unpopped popcorn kernels
• Ice cream not sold in single servings (eg. 2 L tub)
• Muffins, cakes, pies, pastries, doughnuts, brownies, etc... in packages of 6 or more single servings
• Bread products (unsweetened)
• Salads in cans, vacuum sealed or salad kits
• Frozen pizza
• Salt 
• Meal replacements and nutritional supplements
• Spices

What Is Taxed At 13%?

The stuff taxed at 13% is generally the food that is bad for you or already prepared. Which is not to say that food taxed at 13% is always less healthy some of the zero-tax items. A protein bar, for example, strikes me as being a decidedly healthier choice than a six-pack of doughnuts. However, in general, when you don't have to do any of the work in making the food, the government thinks you should pay the tax. Unless you want 6 doughnuts. Check out the list for yourself.

• Pills, tablets and capsules
• Alcoholic beverages (wines, spirits, liquor, beer, etc...)
• Carbonated beverages
• Fruit-flavoured powders or crystals
• Fruit juices and concentrate (if it is less than 25% juice by volume)
• Puddings and beverages (other than unflavoured milk)
• Plain bottled water, one serving (under 600 mL)
• Candies
• Nut bars (honey or nuts are main ingredients)
• Energy or protein bars
• Snack foods: chips, crisps, puffs, curls, or sticks
• Granola bars
• Snack mixtures (contain cereals, nuts, dried fruit, etc...)
• Ice lollies
• Ice cream, frozen yoghurt, sherbert, bars etc... sold in single servings
• Fruit bars, rolls or drops (even the 100% fruit)
• Muffins, cakes, pies, pastries, doughnuts, brownies, etc... in packages of less than 6 single servings
• Bread products (sweetened)
• Heated prepared food (if heated at time of purchase)
• Prepared salads
• Sandwiches
• Platters

Make The Switch And Save

Do you usually buy pre-made popcorn? Buy the unpopped kernels and you won't be taxed because they aren't considered popcorn at that point.

Do you buy ready-made salad? Buy a kit and make it yourself at home with little extra effort and save the 13%.

Do you buy platters of fruits and veggies? Those are considered prepared because you aren't doing the work. Not only are they expensive, you pay tax on them as well. So buy the fruit and cut it yourself. You'll save big.

Stop buying your muffins, doughnuts, ice cream and treats in individual servings. You generally don't pay tax on these kinds of bulk purchases.

A Few Oddities

Puddings and beverages are interesting, but confusing, from a tax perspective. Basically, if you're buying multi-packs of single servings (defined as under 600 mL in volume) you won't be taxed. However, if you buy large servings you will be. So do the math but you could save money and time by buying the convenient prepackaged containers of juice and puddings.

Snack foods are also somewhat confusing. Sometimes things are described as a cracker, other times a cracker/chip, or sometimes just a flat-out chip. A lot of the taxation is based on how its marketed, using phrases such as "Makes a great snack!" and "Craving something new". I myself was still very confused after reading and re-reading this section of the government's document. I came to the conclusion that chips are taxed, crackers are not. Snack foods are taxed regardless of if they are healthy or not. So if something is more like a chip then you can bet it will be taxed. However, if it more like a cracker you won't. The confusing part is this distinction is primarily based upon the marketing of a particular product. This is an example from the CRA's January 2007 GST/HST Memoranda Series:

Product A ingredients include enriched flour, vegetable oil shortening, and potato flakes. It is available in six varieties: original, ranch, barbecue, all dressed, salt and vinegar and zesty cheese. Product A is loosely bagged and sold in 200 gram packages in the cracker aisle of the supermarkets. It is also sold in small bags. Each piece is comparable to the size of a potato chip. Product A is described on its Internet site as “healthier than potato chips”. It is labelled as “part chip and part cracker”, “made with potato like a chip” and “maximum crunch”. It is also described on the label as “ wheat cracker snacks” and “oven baked with wheat like a cracker”. 

Based on the facts set out above, Product A is taxable.Product A is considered to be a “similar snack food” for purposes of paragraph 1(f) of Part III of Schedule VI based on its properties. One of its main ingredients consists of potato (flakes), an ingredient common to those snack foods enumerated in paragraph 1(f). In addition, it is available in flavours commonly associated with snack foods. Also, the appearance (small thin slice) and the texture (crunchy) are similar to those products enumerated in paragraph 1(f). Finally, Product A is labelled and marketed in a manner similar to products enumerated in paragraph 1(f). Although we consider placement of a product in store aisles as a relevant consideration, it alone is not considered a determinative factor.

Confusing right? 

My Thoughts

Overall I learned a lot about how tax works at the grocery store and I was surprised by how complicated the whole system is. I generally always try to buy things that aren't taxed because it's a great way to save money. But in the future I'm going to try even harder to do this. There is definitely an added benefit to trying not to pay tax - you'll eat healthier. Like I said before, generally it's the bad stuff like candy, chip and pop that are taxed. Good stuff, like bananas, apples and chicken, is usually tax free. So only buy the good stuff, save 13% on tax, and live longer. What's not to love about that?