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
Case Number: 181117
Business Number: […]
[Addressee]
Dear [Client]:
Subject: GST/HST RULING
Tax status of medical supplies
Thank you for your letter of […], concerning the application of the goods and services tax (GST)/harmonized sales tax (HST) to the supplies of various medical devices made by […] ([…][ABC]). We apologize for the delay in our response.
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.
STATEMENT OF FACTS
We understand the facts to be:
1. [ABC] is registered for GST/HST purposes.
2. [ABC] primarily sells products in ostomy, urinary continence […][and related products].
3. […].
4. [ABC] sells a number of products which are “multi-purpose”.
5. Tape is an example of a multi-purpose ostomy-related product. Tape has been used in ostomy for many years. The manufacturer of one particular tape that [ABC] sells is […] and the product is described as […][Product X].
[…][Description of Product X]
[Product X] is also widely used for other purposes, such as […][other medical use].
6. Medical adhesive remover is another example of a multi-purpose, ostomy-related product. Medical adhesive remover has also been used in ostomy for many years. For example, one particular product is […][Product Y] […].
[…][Description of Product Y]
This product is also used for other purposes, such as […][other medical use].
7. […]
RULING REQUESTED
You would like to know whether supplies of multi-purpose products [ABC] sell[s], […] […][Products X and Y],are zero-rated. As well, you request information to assist you in determining the tax status of many other multi-purpose products you sell.
RULING GIVEN
Based on the facts set out above, we rule that supplies of [Products X and Y] are taxable supplies that do not qualify for zero-rating. Supplies of [Products X and Y] are, therefore, subject to GST/HST at the rates of 5%, 13%, or 15%, depending on the province in which the supplies are made.
This ruling is subject to the qualifications in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service. We are bound by this ruling provided that none of the above issues are currently under audit, that no future changes to the ETA, regulations or our interpretative policy affect its validity, and all relevant facts and transactions have been fully disclosed.
EXPLANATION
Generally most supplies of property and services made in Canada are subject to the GST/HST, pursuant to section 165, unless they are specifically relieved under the ETA. For instance, medical devices that are specifically identified in Part II of Schedule VI are zero-rated (taxed at the rate of 0%). If a medical device is not included in Part II of Schedule VI, then the supply of the medical device would be subject to tax at the applicable rate, depending on the province in which the supply is made, unless another provision in the ETA applies to zero-rate or exempt the supply.
Section 1.1 of Part II of Schedule VI requires that for the purposes of zero-rating the supply of any medical or assistive device listed in Part II, other than in section 33 (Footnote 1) , the medical or assistive device must be designed for human use or for assisting an individual with a disability or impairment.
In addition, section 1.2 of Part II of Schedule VI provides that a cosmetic service supply (as defined in section 1 of Part II of Schedule V), and any supply of property or service that is in respect of a cosmetic service supply, that is not made for medical or reconstructive purposes, is not zero-rated under Part II. A “cosmetic service supply” is defined in section 1 of Part II of Schedule V to mean a supply of property or a service that is made for cosmetic purposes and not for medical or reconstructive purposes.
It is a question of fact whether a specific item meets the criteria listed in a specific zero-rating provision. Such a determination requires an analysis of the facts particular to that item.
Articles or materials for appliances
Section 26 of Part II of Schedule VI zero-rates a supply of an article or material, not including a cosmetic, for use by a user of, and necessary for the proper application and maintenance of, a prosthesis, appliance or similar article described in section 25 of Part II of Schedule VI.
Section 25 of Part II of Schedule VI zero-rates a supply of a medical or surgical prosthesis, or an ileostomy, colostomy or urinary appliance or similar article that is designed to be worn by an individual.
Under section 1 of Part II of Schedule VI, the term “cosmetic” means, “a property, whether or not possessing therapeutic or prophylactic properties, commonly or commercially known as a toilet article, preparation or cosmetic that is intended for use or application for toilet purposes or for use in connection with the care of the human body, or any part thereof, whether for cleansing, deodorizing, beautifying, preserving or restoring, and includes a toilet soap, skin cream or lotion, mouth wash, oral rinse, toothpaste, tooth powder, denture cream or adhesive, antiseptic, bleach, depilatory, perfume, scent and any similar toilet article, preparation or cosmetic”. However, deodorants, lotions, cleansers, powders, anti-bacterial solutions, creams, wipes, swabs, pads, and other products that help prevent skin or other conditions resulting from the use of a surgical prosthesis, or ileostomy, colostomy or urinary appliance or similar article, are not “cosmetics” for purposes of section 26 of Part II of Schedule VI.
The article or material referred to in section 26 of Part II of Schedule VI must be for use by an individual who wears a prosthesis, appliance or similar article described in section 25, and the article or material must also be necessary for the proper application and maintenance of the prosthesis, appliance or similar article.
The term “necessary” means that the article or material is indispensable or essential to the proper application or maintenance of the device. It is not sufficient that the article not be a cosmetic. It is also not sufficient that the article or material be for use by an individual. In order to be zero-rated under section 26 of Part II, the specific product must be indispensable or essential for the proper application or maintenance of a prosthesis, appliance or similar article described in section 25.
Supplies of general purpose products, such as, general lubricants, cotton swabs, body lotions, cotton pads, hand sanitizers etc., are not articles or materials that are necessary for the proper application of a prosthesis, appliance or similar article, so supplies of these products are not zero-rated under section 26 of Part II of Schedule VI.
To determine if an article or material is necessary for the proper application and maintenance of an appliance such as an ostomy appliance, it may be helpful to consider whether labelling, marketing, literature and packaging accompanying the article or material, or the appliance, indicate specifically that the article or material is necessary for the proper application and maintenance of the appliance. For example, although an item such as [Product X] may be helpful or of use to some, it does not mean it is necessary for the proper application and maintenance of an ostomy appliance.
You indicated in your letter of […], that [Product X] is generally not required and is an undesirable addition for ostomates to use. You also mentioned that [Product Y] is generally not required and is only used in very limited instances. In addition, we have not seen an indispensable or essential connection, as required by the term “necessary”, between [Products X and Y] and the appliances (e.g., ostomy appliance), such as may be shown in labelling, marketing, packaging, or literature of the specific products or the appliances. While [Products X and Y] may be useful for some ostomates, they are not necessary for the proper application or maintenance of an ostomy appliance.
Therefore, supplies of the [Products X and Y] are not zero-rated under section 26 of Part II of Schedule VI. The supplies of the [Products X and Y] are subject to the GST/HST at the applicable rate (5%, 13%, or 15%) depending on the province in which the supplies are made.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-670-7935. 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,
John Ware
Health Care Sectors Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate
FOOTNOTES
1 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.
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