Please note that the following document, although correct at the time of issue, may not represent the current position of the Canada Revenue Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence du revenu du Canada.
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 11th floor
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 143112r
Dear [Client]:
Subject: GST/HST INTERPRETATION
Application of GST/HST to pedorthists’ services and off-the-shelf footwear
Thank you for the correspondence concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to supplies of orthotics and orthopaedic footwear and to supplies of services rendered by a certified pedorthist. We apologize for the delay in responding.
The HST applies in the participating provinces at the following rates: 13% in Ontario; and 15% in New Brunswick, Newfoundland and Labrador, Nova Scotia and Prince Edward Island. The GST applies in the rest of Canada at the rate of 5%.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
BACKGROUND
[…]. The College [of Pedorthics of Canada (the College)] is a national self-regulating body and is responsible for certifying members of the College who are in good-standing.
According to the College’s website at www.cpedcs.ca, a pedorthist is an individual who is trained in the manufacturing, fitting, and modification of foot orthotics and footwear to assist in:
- Alleviating painful or debilitating conditions of the lower limb;
- Accommodating foot deformities;
- Re-aligning anatomical structures;
- Redistributing external and internal forces;
- Improving balance;
- Controlling biomechanical function;
- Accommodating circulatory special requirements; and
- Enhancing the actions of limbs compromised as a result of accident, congenital deformity, neural condition, or disease.
A Canadian Certified Pedorthist is a healthcare professional trained in the assessment of lower limb anatomy and muscle and joint function. Canadian Certified Pedorthists must hold a university degree with core courses in anatomy, physiology, biomechanics, disease processes, ethics, and sports medicine. The academic training is combined with technical training in the design, manufacture, fit, and modification of foot orthotics and footwear to achieve certification. A Canadian Certified Pedorthist includes a Certified Pedorthist Canada (C. Ped (C), Certified Pedorthic Master Craftsman (C. Ped MC), a Certified Pedorthic Technician Canada (C. Ped. Tech (C)), and a Certified Orthopaedic Footwear Specialist.
An individual with the designation “C. Ped (C)” provides:
- measuring, casting and making original shoe lasts
- designing and making upper patterns
- manufacturing models of shoes used for fitting
- lasting and finishing of custom shoes.
An individual with the designation “C. Ped Tech (C)” provides:
- Shoe fitting;
- Shoe modification and orthotic fabrication (from laboratory prescriptions provided by foot care professionals with the scope of practice to assess);
- Orthotic fabrication;
- Shoe modifications; and
- Duties of a clinical pedorthist under the direct supervision of a Canadian Certified Pedorthist.
An individual with the designation “COFS” (Footnote 1) provides:
- Assessment for orthotics and custom footwear;
- Casting and measuring for custom footwear;
- Manufacturing of custom orthopaedic footwear, including:
- measuring, casting and making original shoe lasts
- designing and making upper patterns
- manufacturing models of shoes used for fitting
- lasting and finishing of custom shoes
- Casting, manufacturing, fitting and adjusting of orthoses;
- Fitting and modifying standard and orthopaedic footwear; and
- Accommodating complementary assistive devices.
Prescribing healthcare providers write a prescription for their patients referring them to a Canadian Certified Pedorthist for assistance with any pain or discomfort of the lower limbs or feet. The prescription can be for a basic assessment or for a full biomechanical assessment that involves a gait analysis.
A Canadian Certified Pedorthist can assist individuals with a wide range of foot and lower limb problems including:
- Lower limb pain and compromised biomechanics caused by complications from diabetes, arthritis, sports injuries or caused by medical conditions such as polio, Charcot-Marie-Tooth disease (CMT) and foot drop;
- Plantar fasciitis;
- Knee osteoarthritis;
- Limb length discrepancies;
- Achilles tendonitis;
- Shin splints;
- Claw toes or hammer toes;
- Bunions and bunionettes;
- Metatarsalgia; and
- General foot pain.
The services provided by a Canadian Certified Pedorthist include:
Initial assessment – assessment and determination of the cause of symptoms, and the need for treatment. During this appointment, the Canadian Certified Pedorthist will take a medical history and review with the patient the prescription written by the prescribing healthcare provider. The Canadian Certified Pedorthist will also conduct a gait assessment, a full hands-on assessment of the lower limb to assess a lower limb range of motion, and a static and dynamic assessment. The Canadian Certified Pedorthist will also select the appropriate modalities to fill the prescription, which could include compression stockings, custom footwear, and modified off-the-shelf footwear.
Casting – involves taking a three-dimensional impression of the foot for the fabrication of an orthotic, or the creation of custom footwear.
Manufacturing of product and/or modification of footwear. The manufacturing process varies, but essentially involves selecting the most appropriate materials for the condition being treated. The materials are heated, glued, molded, and ground down to form the orthotic and then shaped to fit the patient and the shoe.
Fitting appointment – to ensure that the product provided fits and functions properly. The Canadian Certified Pedorthist will also provide the patient with information on how to best utilize the product(s).
Review appointment – after using the product for a period of time, a follow up appointment is made to ensure the product(s) is still comfortable and functioning well.
If a patient requires modifications to footwear, the publication you provided, “A Resource for Canada’s Insurance Industry” (the Publication) (Footnote 2), states that practitioners invoice one fee for footwear modifications. This fee covers the assessment, fitting, and follow-up as well as the cost of materials and labour. If the patient purchased the footwear at the same time the footwear is modified, the cost of purchased footwear must be clearly separated on the invoice. The Publication further states that if a custom-made orthotic is purchased at the same time as the footwear modification, the cost of the assessment, fitting and follow-up might be built into the cost of the orthotic.
INTERPRETATION REQUESTED
You would like to know how the GST/HST applies to supplies of orthotics and supplies of modified and off-the-shelf footwear made by a Canadian Certified Pedorthist. In addition, you would like to know how the GST/HST applies to services provided by a Canadian Certified Pedorthist and the documentary requirements a Canadian Certified Pedorthist must meet to be compliant under the ETA.
INTERPRETATION GIVEN
The Canada Revenue Agency (CRA) issues both rulings and interpretations. Rulings are issued where a determination on a question of fact is required and all of the relevant facts and supporting documentation have been presented in writing (e.g., invoices, contracts, agreements, etc.). An interpretation is a written statement issued by the CRA that sets out the CRA’s view of how the legislation applies to a generic fact situation. Accordingly, for a general inquiry of this nature, we will provide you with an interpretation of the relevant provisions of the ETA that apply to the pedorthic profession.
Generally, all supplies of property and services made in Canada are taxable unless an exemption from the GST/HST applies. Taxable supplies are supplies made in the course of a commercial activity and may be taxable at the rate of 0% (zero-rated supplies), 5%, 13%, or 15% on the value of the consideration for the supply depending on the province in which the supply is made. Zero-rated supplies are included in Schedule VI. Exempt supplies are not subject to the GST/HST and are included in Schedule V.
Sales of orthotics and orthopaedic devices
Section 23 of Part II of Schedule VI zero-rates a supply of an orthotic or orthopaedic device that is made to order for an individual or is supplied on the written order of a specified professional for use by a consumer named in the order.
Section 1 of Part II of Schedule VI defines the term “specified professional” to mean a person that is entitled under the laws of a province to practise the profession of medicine, physiotherapy or occupational therapy, or a registered nurse.
Section 1.1 of Part II of Schedule VI provides that for purposes of Part II of Schedule VI, other than section 33 (Footnote 3), a supply of property (e.g., a medical or assistive device), that is not designed for human use or for assisting an individual with a disability or impairment is deemed not to be included in this Part. In addition, section 1.2 of Part II of Schedule VI provides that a cosmetic service supply and a supply, in respect of a cosmetic service supply, that is not made for medical or reconstructive purposes are deemed not to be included in Part II of Schedule VI (i.e., not zero-rated).
The terms “orthotic” and “orthopaedic device” are not defined in the ETA; therefore, the CRA considers their common or ordinary meaning. Dorland's Illustrated Medical Dictionary 32nd Edition (Dorland's) defines the following terms:
"orthotics" means the field of knowledge relating to orthoses and their use.
"orthoses" means an orthopedic appliance or apparatus used to support, align, prevent, or correct deformities or to improve the function of movable parts of the body.
"ortho" means a combining form meaning straight, normal, or correct.
"orthopedic" (the alternate spelling of the word "orthopaedic")” means pertaining to the correction of deformities of the musculoskeletal system; pertaining to orthopedics.
"orthopedics" means that branch of surgery which is concerned with the preservation and restoration of the function of the skeletal system, its articulations, and associated structures.
“device” means something contrived for a specific purpose. Synonyms for the term “contrivance” include gadget, machine, appliance, contraption, apparatus, mechanism, implement, or tool.
The Online Merriam-Webster Dictionary (Footnote 4) defines the following terms:
“orthotic” means a device (such as a brace or splint) for supporting, immobilizing, or treating muscles, joints, or skeletal parts which are weak, ineffective, deformed, or injured.
“orthopedics” means a branch of medicine concerned with the correction or prevention of deformities, disorders, or injuries of the skeleton and associated structures (such as tendons and ligaments).
“device” means something devised or contrived; a piece of equipment or a mechanism designed to serve a special purpose or perform a special function.
The Concise Oxford Dictionary 10th Edn. defines the following terms:
“orthotic” means an artificial support or brace for the limbs or spine.
“orthopaedics” means the branch of medicine concerned with the correction of deformities of bones or muscles.
“device” means a thing made or adapted for a particular purpose, especially a mechanical or electronic contrivance.
Based on the definitions above, an orthotic and an orthopaedic device are gadgets, appliances or apparatuses that are designed to align, brace or support bones of the skeleton, muscles, joints or skeletal parts (e.g., tendons, ligaments, cartilage and other connective tissue) to correct, maintain or improve movements of joints, spine and limbs.
Examples of an orthotic include toe alignment splints, plantar fasciitis night splints, and shoe inserts including orthotic insoles, arch supports, metatarsal and heel pads. Examples of an orthopaedic device include a spinal or orthopaedic brace, cervical spinal collars and cervical pillows, neck halters, cradle arm slings, knee braces, orthopaedic gloves, ankle braces, arch braces, rocker-soled walking brace, and backrest supports.
In contrast, specialized clothing containing (cotton/foam) pads for protecting bones and joints, compression stockings, tensor bandages and tape used in physiotherapy and kinesiology are not orthotics or orthopaedic devices for GST/HST purposes as these products on their own do not align, brace or support parts of the musculoskeletal system in a manner that one would expect from a gadget, appliance, apparatus or contrivance.
In addition, orthopaedic footwear is not generally an orthopaedic device for purposes of section 23 of Part II of Schedule VI. The ordinary meaning of the term “footwear” refers to wearing apparel for the feet. The primary purpose of footwear is to ease locomotion and to protect the feet against environmental adversities. While the features of orthopaedic shoes may help support parts of the musculoskeletal system and improve the movement of joints, footwear in general is not a gadget, appliance, apparatus or contrivance that is manufactured for an orthopaedic purpose. In essence, footwear is not the type of product that an ordinary person would consider as an orthopaedic device (Footnote 5).
All custom-made orthotics and orthopaedic devices may be supplied on a zero-rated basis without a written order of a specified professional if the supply is not excluded from section 23 of Part II of Schedule VI by section 1.1 or 1.2 of that Part. In contrast, supplies of off-the-shelf orthotics and orthopaedic devices are zero-rated only when supplied on the written order of a “specified professional” (i.e., a physician, physiotherapist, occupational therapist or registered nurse) for use by a consumer named in the order, provided sections 1.1 and 1.2 of Part II of Schedule VI do not exclude the supplies from zero-rating. Without a valid written order the supplies of off-the-shelf orthotics and orthopaedic devices are generally subject to the GST/HST at the applicable rate, depending on the place of supply.
Written order
The expression “written order” is not defined in the ETA. It is the CRA’s view that a “written order” refers to a document containing the name of an individual, a description of the medical or assistive device required by the individual, the name and signature of the “specified professional”, and the date of the assessment/completion of the written order.
A written order of a health care professional who is not a “specified professional” as defined in section 1 of Part II of Schedule VI does not meet the requirements for the supply to be zero-rated under section 23 of Part II of Schedule VI, even if the health care professional is authorized under the laws of a province to prescribe medical or assistive devices. For example, Canadian Certified Pedorthists, chiropodists and podiatrists, although legally entitled to prescribe a device, are not “specified professionals”. Therefore, a supply of an orthotic or orthopaedic device made on the written order of a Canadian Certified Pedorthist, chiropodist or podiatrist is not zero-rated under Part II of Schedule VI.
In addition, Part II of Schedule VI contains several provisions that zero-rate different medical and assistive devices when supplied on the written order of a “specified professional” for use by the consumer named in the order. The CRA interprets this wording to mean that the purchaser must provide a copy of the written order to the supplier at the time the supply is made for the supply of the device to be zero-rated under this Part.
Section 133 deems a supply of property or service to be made at the time the agreement for the supply is entered into. The [actual] provision of the property under that agreement is considered part of that same supply and not a separate supply. If there is no formal agreement between the parties for the making of a supply, another form of documentation can demonstrate the presence and timing of the agreement between the parties. For example, an invoice can serve as a record of an agreement for the making of a supply or as a record that a supply was made.
Therefore, where a copy of a written order is required to zero-rate a supply of a device, a copy of the written order must be provided to the supplier on the date the agreement is entered into or invoice issued, even if at that time the device has not been transferred to the purchaser.
The ETA does not impose a time limit for the use of a written order or restrict the use of the written order to a single transaction. A supply of a medical or assistive device described in a written order may be made on a zero-rated basis multiple times and across several transactions provided the supply of the device meets the conditions in one of the sections in Part II of Schedule VI and the written order clearly describes the device that is being supplied.
A supplier is responsible for retaining sufficient documentation for the CRA to verify that the sale of the orthotics (off-the shelf orthotics only), or orthopaedic device was supplied on the written order of a “specified professional” (i.e., a purchaser is eligible to purchase the device on a zero-rated basis).
Section 24.1 of Part II of Schedule VI zero-rates a supply of footwear that is specially designed for use by an individual who has a crippled or deformed foot or other similar disability, if the footwear is supplied on the written order of a “specified professional” and the supply is not excluded from Part II of Schedule VI by sections 1.1 and 1.2 of that Part.
Section 24.1 of Part II of Schedule VI refers to the term “disability” in the context of a crippled or deformed foot or other similar disability. The term “disability” is not defined in the ETA. It is the CRA’s view that the wording of this section makes it clear that the footwear in question (e.g., shoes, boots, slippers) must be specially designed for use by an individual with functional limitations of the foot that result from a structural or physical (e.g., nerve, soft-tissue, or skin) abnormality that interferes with the individual’s ability to complete their normal activities of daily living. This includes an individual with lower limb pain and compromised biomechanics caused by accident, congenital or developmental deformity, sports injuries or medical conditions such as arthritis, diabetes, polio, and CMT disease.
Examples of foot disabilities include joint destruction and deformity of articulations in the foot, collapsed arches, amputations, club foot, foot drop, limb length discrepancies, claw toe(s), hammer toe(s), mallet toe(s), and other structural deformities where the joint is beyond the normal range of joint motion. Also included are foot complications arising from diabetes, for example, neuropathy, peripheral vascular disease, and infection.
Not every individual whose feet present conditions that distinguish them from “normal” feet would constitute a cripple or deformed foot or other similar disability. For example, an individual with general blisters, corns, calluses, and mild bunions is not considered to have a crippled or deformed foot or other similar disability. However, these and other foot conditions may qualify as a disability for GST/HST purposes depending on the severity of the condition and whether, in a particular case, the condition is medically viewed to be a disability.
The expression “specially designed” is not defined in the ETA. It is the CRA’s view that the common and ordinary meaning of the expression “specially designed” in the context of Part II of Schedule VI refers to a medical or assistive device that is designed for the purpose of assisting an individual with a disability in alleviating the effects of, or compensating for, the limitations of that disability. Therefore, for a device to be specially designed there must be evidence demonstrating a rational connection between the intent of the engineer, manufacturer or producer to deliberately incorporate specific design features that assist individuals with a particular disability in alleviating the effects of that disability and the actual design features of the device.
The evidence must be assessed on a case-by-case basis and may come from various sources. Supporting documentation demonstrating the manufacturer’s intent may include customer or scientific studies; testimony of medical professionals providing evidence respecting the device’s features, the purpose and medical benefits, and the impact of the device on certain foot conditions; technical or engineering drawings; product testing and peer reviews. Where such documentation is lacking, proof of intent can also be considered after the fact as long as the evidence is sufficient to reasonably infer that the intent to incorporate such design features was present during the design phase of the device.
Orthopaedic footwear which is custom-made, manufactured from scratch, or custom-moulded from standard components generally has certain design features attributed to footwear that is designed specifically for use by an individual with a crippled or deformed foot or other similar disability. For example, the footwear is made from a replica and specific measurements of the individual’s feet to accommodate the contour of an individual’s feet, including foot length and width, arches, ankles, heels and toes as well as bony prominences, pressure points, and sensitive areas. In addition, the construction of the footwear takes into account the description of the individual’s particular deformity and type of correction to be built into the footwear.
In most cases, custom-made footwear described above meet the requirements to be specially designed for use by an individual with a crippled or deformed foot or other similar disability and supplies of such footwear are zero-rated under section 24.1 of Part II of Schedule VI when supplied on the written order of a “specified professional”. However, it is not necessary that footwear be custom-made to be “specially designed” footwear under section 24.1 of Part II of Schedule VI. As discussed below, certain types of off-the-shelf footwear and footwear adapted or modified to accommodate the special needs of an individual may also be “specially designed”.
There are some types of shoes manufactured with minor structural design features that attract the attention of consumers who believe the features may help with physical conditions that are not medically viewed to be a disability. These shoes may be referred to as “orthopaedic shoes” or “therapeutic shoes”. The fact that shoes are named or promoted as “orthopaedic shoes” or “therapeutic shoes” does not necessarily mean that the shoes are “specially designed” or qualify for zero-rating. Examples of this type of footwear include commercially available walking shoes and athletic shoes which provide adequate support or mild to moderate motion control or shoes with removable insoles for the insertion of an orthotic. Another example includes footwear made from soft leather or other soft material or with elastic uppers that can accommodate a foot with a bunion or a rheumatoid foot. The supply of footwear described in these examples is subject to the GST/HST at the applicable rate, depending on the place of supply.
Notwithstanding the above, there are certain types of off-the-shelf footwear with special built-in features manufactured particularly to accommodate an individual with one or more medical disabilities. The CRA does not have a list of particular design features that must be present for off-the-shelf footwear to be specially designed for use by an individual with a crippled or deformed foot or other similar disability. Where evidence exists to support the manufacturer’s intent to deliberately incorporate particular design features recognized in the foot care industry to assist an individual with a crippled or deformed foot or other similar disability in alleviating the effects of that disability, the supply of footwear will be zero-rated under section 24.1 of Part II of Schedule VI, provided the footwear is supplied on the written order of a “specified professional”.
For example, footwear incorporating orthopaedic features (e.g., a rigid counter, wide shank, or wedged or cradle sole) that are designed to accommodate rigid toes or to prevent the foot from tripping or shearing or prevent the foot from rolling inward or outward would be considered specially designed footwear for purposes of section 24.1 of Part II of Schedule VI.
In addition, off-the-shelf footwear and standard footwear may be adapted or modified to better support and accommodate the needs of an individual. In determining whether off-the-shelf footwear is "specially designed for use by an individual with a crippled or deformed foot or other similar disability", the extent to which the footwear is modified and the type of modifications must be examined. The following may assist in determining the proper tax treatment of footwear:
- Are the modifications to the footwear substantive, such that the footwear cannot be easily returned to its original condition?
- Do the modifications to the footwear accommodate an individual’s structural or physical deformity by compensating for or alleviating the limitations flowing from the foot deformity or other similar disability?
- Is the modification to the footwear made on the order of a specified professional?
Modifications to existing off-the-shelf footwear or standard footwear such as excavations, heel and sole flares and extensions, lifts, shoe widening, buttressing, sole wedging, rocker soles, addition of a metatarsal pad/bar, a brace attachment, balloon patching are all modifications substantial enough such that the footwear cannot be easily returned to its original condition and would most likely be further supported by a written order. Supplies of this type of modified footwear are generally zero-rated under section 24.1 of Part II of Schedule VI, provided the footwear is supplied on the written order of a “specified professional”.
However, minor alterations made to existing “off-the-shelf” footwear do not result in footwear that is specially designed for use by an individual with a crippled or deformed foot or other similar disability. For example, an individual is supplied with a custom-made orthotic together with off-the-shelf footwear. The insertion (or installation) of a custom-made orthotic in the footwear where the original insole or material in the footwear is removed to accommodate the installation of the custom orthotic device (Footnote 6) is not sufficient to consider the footwear specially designed for use by an individual who has a crippled or deformed foot or other similar disability.
Another example includes footwear that is modified to include only one of the following: a heel grip or metatarsal pad or padding to increase the arch support of the footwear, or the inclusion of a wedge or shims to modify the angle of the heel or ball inside the footwear. It is the CRA’s view that these modifications are not sufficient to consider the footwear specially designed for use by an individual with a crippled or deformed foot or other similar disability. Therefore, the supplies made in the examples provided are generally subject to the GST/HST at the applicable rate, depending on the place of supply.
Pedorthic services
Sections 23 and 24.1 of Part II of Schedule VI only apply to a supply of an orthotic, orthopaedic device and footwear. These sections do not extend to zero-rate a supply of a service made by a Canadian Certified Pedorthist for patient assessments or for the modification of orthotics and footwear.
Generally, health care services are exempt from the GST/HST rather than zero-rated. Part II of Schedule V exempts from the GST/HST supplies of certain health care services rendered to an individual by specific health care professionals. To be exempt from the GST/HST, a health care service must meet the requirements in one of the exemptions included in this Part and not be excluded from the exemption by sections 1.1 and 1.2 of Part II of Schedule V. A supply of a health care service rendered by a person other than a health care professional listed in an exemption in Part II of Schedule V is generally subject to the GST/HST at the applicable rate, depending on the place of supply. Currently, there is no exemption in Part II of Schedule V for health care services rendered by pedorthists.
Notwithstanding the above, a service provided by a Canadian Certified Pedorthist may be zero-rated if the service forms part of a supply of an orthotic, specially designed footwear or other property that is zero-rated under Part II of Schedule VI. In addition, a supply of a service provided by a Canadian Certified Pedorthist is zero-rated if the service is one of the services set out in section 34 of Part II of Schedule VI. An explanation is provided below.
Single supply of property
The application of the GST/HST to a supply made by a Canadian Certified Pedorthist is based on the nature of the overall supply made. Therefore, for each transaction, a Canadian Certified Pedorthist must determine what is being supplied. For example, following the assessment of a patient, the patient agrees to purchase off-the-shelf footwear that requires a heel extension and the insertion of a metatarsal pad. In this case, the Canadian Certified Pedorthist is providing the patient with property (i.e., footwear) and services (i.e., an assessment and the service of modifying the footwear). To apply the correct tax treatment to the transaction, it is necessary to determine whether the patient is purchasing a single supply of modified footwear or separate supplies of footwear and services.
As stated in GST/HST Policy Statement P-077R2, Single and Multiple Supplies, the determination of whether a transaction consisting of several elements (i.e., multiple services, multiple property or property and services) is a single supply or multiple supplies is a determination of fact. The characterization of a transaction as a single supply or multiple supplies considers the purpose of an agreement, what has been supplied for the payment made, the needs of the customer, the interrelationships among the various elements of the agreement, and the economic reality of the transaction.
In general, two or more elements of a transaction are part of a single supply when the elements are integral components or the elements are so intertwined and interdependent that they must be supplied together. Similarly, if one element of the transaction is so dominated by another element that the first element has lost any identity for fiscal purposes, the supply is considered a single supply of the dominant element. Conversely, multiple supplies occur when one or more elements of a transaction can sensibly or realistically be broken out from the other elements, or the elements are not reliant on each other to achieve their purpose.
When conducting a single supply or multiple supplies analysis, it is important to consider that the way in which the consideration for a transaction is set out does not in itself determine whether there are one or more supplies. A single consideration does not automatically mean that there is one supply. Equally, separately identified consideration for certain elements does not necessarily mean that there are two or more supplies. Therefore, one cannot rely solely on the breakdown of charges in an agreement or on an invoice to conclude that a supplier is making multiple supplies of different property and/or services.
Returning to the example above, at the time the assessment of a patient is completed, if the agreement between the Canadian Certified Pedorthist and the patient is for the purchase of modified footwear and, at that time, the patient is invoiced a fee for the footwear, it is the CRA’s view that the assessment, modification, and follow-up appointments necessary for the Canadian Certified Pedorthist to provide the modified footwear are elements (services) that form part of a single supply of footwear.
If the footwear is sold under the conditions set out in section 24.1 of Part II of Schedule VI, the sale of footwear is zero-rated even if the consideration (fee) for the footwear and the consideration for the service component are identified separately on the invoice issued to the patient. In these circumstances the service component forms part of the supply of footwear and therefore takes on the same tax status as the supply of footwear.
However, if at the time the assessment of the patient is completed the patient does not purchase any footwear and the patient is invoiced a fee for the assessment service, assuming the Canadian Certified Pedorthist is a registrant (Footnote 7), the fee is subject to the GST/HST since there is no GST/HST exemption applicable to the supply of an assessment service made by a Canadian Certified Pedorthist. If the patient purchases the footwear at a later time and a (new) agreement is entered into for the purchase, under the ETA the assessment service previously supplied by the Canadian Certified Pedorthist is treated as a separate and distinct supply. The supply of the assessment service has been made. Therefore, that supply cannot form part of a future supply under the agreement for the supply of footwear.
Although the supply of the footwear may be zero-rated under section 24.1 of Part II of Schedule VI if supplied on the written order of a “specified professional”, at the time the supply was made the GST/HST was correctly applied to the consideration charged for the assessment service. Since the GST/HST was correctly applied, there is no mechanism under the ETA to refund the GST/HST to the patient in these circumstances.
The same reasoning applies when a patient undergoes an assessment by a Canadian Certified Pedorthist and is invoiced a fee plus GST/HST for the assessment service and, at a later time returns with a referral (written order) from a physician to purchase a custom orthotic or footwear. Under the ETA, the assessment previously supplied by the Canadian Certified Pedorthist is a separate supply and cannot form part of the supply of the orthotic or footwear, even if a written order is presented. At the time the supply was made, the GST/HST was correctly applied on the consideration invoiced for the assessment service.
Section 34 of Part II of Schedule VI
Section 34 of Part II of Schedule VI zero-rates, in part, a supply of a service (other than a supply of service exempt under Part II of Schedule V except section 9 of that Part) of installing, maintaining, restoring, repairing or modifying a property the supply of which is included in sections 23 and 24.1 of Part II of Schedule VI. The zero-rating of these services applies only to property that is or was supplied on a zero-rated basis under Part II of Schedule VI; for example, the original sale of the device to a consumer was made on a zero-rated basis.
Therefore, section 34 of Part II of Schedule VI may apply to the supply of a Canadian Certified Pedorthist’s service of installing, maintaining, restoring, repairing or modifying:
- custom-made and specially designed footwear originally supplied on a written order of a specified professional (section 24.1 of Part II of Schedule VI); and
- custom-made orthotics or off-the shelf orthotics originally supplied on the written order of a specified professional (section 23 of Part II of Schedule VI).
If a patient requires modifications to, or a repair of, (or other services set out in section 34) custom-made or specially designed footwear originally supplied on a written order of a “specified professional”, then the service supplied by the Canadian Certified Pedorthist of modifying or repairing the footwear is zero-rated under section 34 of Part II of Schedule VI (Footnote 8). Similarly, the supply of a service to modify or repair a custom-made or off-the-shelf orthotic that was originally sold on the written order of a “specified professional” is also zero-rated under section 34 of Part II of Schedule VI. However, the Canadian Certified Pedorthist must obtain sufficient documentation for the CRA to verify that the footwear or orthotic was originally supplied on a zero-rated basis. For example, a copy of the invoice for the sale of the footwear or orthotic and the written order of a “specified professional” for the footwear or orthotic is sufficient.
In contrast, section 34 of Part II of Schedule VI does not apply to the supply of a service supplied by a Canadian Certified Pedorthist of maintaining, restoring, repairing or modifying footwear or orthotics that were not supplied on a zero-rated basis. For example, the fee charged to a patient who brings in his or her standard footwear to be modified is subject to the GST/HST if the footwear was not zero-rated under section 24.1 of Part II of Schedule VI when purchased by the individual, even if the patient presents a written order from a specified professional for the modification service.
To summarize, the following supplies discussed in this letter are generally taxable and subject to the GST/HST:
- patient assessment where no custom-made orthotic or footwear is sold to the patient;
- patient assessment where an off-the-shelf orthotic is sold without a written order of a “specified professional”;
- modification of a patient’s own standard footwear (not previously sold on a zero-rated basis) with or without a written order of a “specified professional”; and
- minor modification to footwear with or without a written order of a “specified professional”.
A Canadian Certified Pedorthist is required to charge and collect tax at the applicable rate if the Canadian Certified Pedorthist is a GST/HST registrant. Please note, there may be other supplies made by a Canadian Certified Pedorthist that are subject to the GST/HST.
Amounts paid as or on account of tax
Where a supplier has charged or collected an excess amount as or on account of tax on supplies that qualify for zero-rating, it may refund or credit the excess amount to the recipient in accordance with section 232. If the supplier refunds or credits the amounts collected as GST/HST, it must do so within two years after the day the amount was charged or collected and it must provide the recipient with a credit note (unless the recipient issues a debit note) containing prescribed information.
Alternatively, persons who have paid an amount as GST/HST on supplies that qualify for zero- rating may make an application to the CRA for a rebate of the amount paid in error pursuant to section 261 using Form GST189, General Application for Rebate of GST/HST. The time limit to apply for this rebate is within two years after the day the amount was paid.
For more information, including the specific information that must be contained on a credit note or debit note, refer to GST/HST Memorandum 12.2, Refund, Adjustment, or Credit of the GST/HST under Section 232 of the Excise Tax Act and Guide RC4033, General Application for GST/HST Rebates.
Books and records
There is no specific list of documentation issued by the CRA that must be maintained for a person to meet their obligations under subsection 286(1). Requests for documentary information by an auditor must be relevant to the administration or enforcement of the ETA. You asked whether the production of patient records during an audit is a breach of a patient’s confidentiality. Generally, it is not necessary for a Canadian Certified Pedorthist to produce patient records other than a copy of the written order of a specified professional to verify that a sale of an off-the-shelf orthotic, orthopaedic device or orthopaedic footwear is supplied on a zero-rated basis under the relevant provisions in Part II of Schedule VI. The written orders would need to correspond to the specific sales documents to demonstrate that the zero-rating condition is met. While this would necessitate disclosure of a patient’s name on the written orders and corresponding sales documents, there would generally not be any other requirement to disclose the patient’s records.
For information on the necessary books and records a supplier must maintain, please refer to Guide RC4022, General Information for GST/HST Registrants.
We understand your concern that services rendered by a Canadian Certified Pedorthist are not exempt from the GST/HST and the limitations concerning the definition of “specified professional” in the context of prescribing orthotics, orthopaedic devices and specially designed footwear. The CRA is responsible for the administration of the ETA and its Regulations as enacted by Parliament. A legislative amendment to the ETA would be required to treat services supplied by a Canadian Certified Pedorthist as exempt supplies and to broaden the definition of “specified professional” to include a Canadian Certified Pedorthist. Legislative amendments are a matter of tax policy, which fall within the responsibility of the Department of Finance Canada. We have notified officials at the Department of your concerns.
In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, the interpretation(s) given in this letter, including any additional information, is not a ruling and does not bind the CRA with respect to a particular situation. Future changes to the ETA, regulations, or the CRA’s interpretative policy could affect the interpretation(s) or the additional information provided herein.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-670-7934. Should you have additional questions on the interpretation and application of GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.
Yours truly,
Alison Jones
Health Care Sectors Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate
FOOTNOTES
1 […].
2 The Publication was published by the Pedorthic Association of Canada on May 2, 2016.
3 Section 33 of Part II zero-rates a supply of an animal that is or is to be specially trained to assist an individual with a disability or impairment with a problem arising from the disability or impairment, or a supply of a service of training an individual to use the animal, if the supply is made to or by an organization that is operated for the purpose of supplying such specially trained animals to individuals with the disability or impairment.
4 https://www.merriam-webster.com/dictionary.
5 Section 24.1 of Part II of Schedule VI zero-rates a supply of footwear that is specially designed for use by an individual who has a crippled or deformed foot or other similar disability, if the footwear is supplied on the written order of a specified professional, as discussed in more detail below.
6 The supply of the custom-made orthotic would likely be zero-rated under section 23 of Part II of Schedule VI as a separate supply from the supply of footwear.
7 Subsection 123(1) defines a registrant to mean a person who is registered, or who is required to be registered, under Subdivision d of Division V.
8 Section 34 of Part II of Schedule VI would generally apply to situations where a patient brings in footwear to be modified that was originally supplied on a zero-rated basis rather than having the modification occur prior to the original supply of the footwear discussed above.
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