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: 166865
Business Number: […]
Dear [Client]:
Subject: GST/HST RULING
Application of GST/HST to supplies of medical cannabis
This letter is in response to a ruling requested by […], concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to supplies of medical cannabis made by […](the Business). […]. We apologize for the delay in our reply.
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 as follows:
1. The Business is a commercial producer of various strains of dried marihuana and other cannabis products for medical purposes and operates a facility located in […][Province A]. The Business is registered for GST/HST.
2. The Business was licensed by Health Canada on [dd/mm/yyyy] (Footnote 1), […][to cultivate and sell cannabis products]. The Business is listed on Health Canada’s website as a licenced producer.
3. The Business supplies dried marihuana and other cannabis products only to individuals resident in Canada who are registered clients of the Business and who have provided the Business with their original medical document completed by a licensed health care practitioner (Footnote 2) or a copy of their registration certificate issued by the Minister of Health. The medical document and registration certificate are not provided to a pharmacist for purposes of dispensing dried marihuana or other cannabis products.
[…]
4. Cannabis is listed in Schedule II of the Controlled Drugs and Substances Act, S.C. 1996, c. 19 (CDSA) and is therefore a controlled substance for purposes of the CDSA. As such, the possession, production, sale, import and export of cannabis are governed by the CDSA and its regulations.
Under subsection 55(1) of the CDSA the following regulations were created under the CDSA to regulate the possession, production, and sale of dried marihuana and other cannabis products:
- Narcotic Control Regulations, CRC, c1041 (NCR);
- Marihuana for Medical Purposes Regulations - April 1, 2014 to August 23, 2016 (MMPR); and
- Access to Cannabis for Medical Purposes Regulations - August 24, 2016 to present (ACMPR).
5. The NCR allow for the distribution of narcotics and other controlled substances, including dried marihuana and other cannabis products, by pharmacists, medical practitioners and hospitals in prescribed circumstances and are not applicable to sales of dried marihuana and other cannabis products made to an individual by a licenced producer.
A separate regulatory regime under the (former) MMPR and the ACMPR was established to govern the sale of dried marihuana and other cannabis products to a registered client of a licensed producer.
6. Section 56 of the CDSA authorizes the Minister of Health to exempt any person or class of persons or any controlled substance from the application of all or any part of the provisions of the CDSA or its regulations. There are no section 56 exemptions currently in place pertaining to the sale of dried marihuana and other cannabis products by a licensed producer to its clients. (Footnote 3)
April 1, 2014 - August 23, 2016
7. As of April 1, 2014, the MMPR authorize:
- the possession of dried marihuana for medical purposes by individuals who have the support of an authorized health care practitioner;
- the production of dried marihuana by licensed producers; and
- the sale and distribution of dried marihuana by licensed producers and hospitals to individuals who can possess it.
8. Section 1 of the MMPR defines the following terms for purposes of the MMPR:
“client” means a person who is registered as a client with a licensed producer under section 111 (Footnote 4).
“health care practitioner” means a medical practitioner or a nurse practitioner.
“marihuana” means the substance referred to as “Cannabis (marihuana)” in subitem 1(2) of Schedule II to the CDSA.
“medical document” means a medical document referred to in section 129.
“medical practitioner” means a person who
(a) is registered and entitled under the laws of a province to practise medicine in that province; and
(b) is not named in a notice issued under section 59 of the NCR that has not been retracted under section 60 of those Regulations.
9. Under subsection 3(1) of the MMPR a person listed in subsection 3(2) may possess dried marihuana if the dried marihuana is obtained
(a) in accordance with the MMPR;
(b) in the course of activities performed in connection with the enforcement or administration of any Act or its regulations;
(c) from a person who is exempt under section 56 of the CDSA from the application of subsection 5(1) of the CDSA with respect to the dried marihuana or cannabis; or
(d) in the case referred to in subparagraph 3(2)(a)(iii) of the MMPR, under subsection 65(2.1) of the NCR.
10. Under subsection 3(2) of the MMPR the following persons may possess dried marihuana:
(a) a person who has obtained the dried marihuana for their own medical purposes or for those of another person for whom they are responsible
(i) from a licensed producer, in accordance with a medical document,
(ii) from a health care practitioner in the course of treatment for a medical condition, or
(iii) from a hospital, under subsection 65(2.1) of the NCR;
(b) a person who requires dried marihuana for the practice of their profession as a health care practitioner in the province in which they have that possession; or
(c) a hospital employee, if they possess the dried marihuana for the purposes of and in connection with their employment.
11. Section 12 of the MMPR outlines the limited activities a licensed producer is authorized to engage in that involves dried marihuana. In particular, under subsection 12(4) of the MMPR a licensed producer may
(a) sell or provide dried marihuana to
(i) a client of that producer or an individual who is responsible for the client;
(ii) a hospital employee, if the possession of the dried marihuana is for the purposes of and in connection with their employment; or
(iii) a person to whom an exemption relating to the dried marihuana has been granted under section 56 of the CDSA.
(b) ship dried marihuana to a health care practitioner in the case referred to in subparagraph 108(1)(f)(iii) of the MMPR.
12. Sections 107 to 124 of the MMPR outline the requirements an individual and a licensed producer must meet for an individual to become a client of a licensed producer. Before registering an individual as a client, section 108 of the MMPR requires a licensed producer to obtain from the individual or individual responsible for the individual, an application containing prescribed information including the individual’s name, date of birth, gender, address of residence and mailing address.
Under subsection 108(2) of the MMPR an individual must include with the application the original of their medical document. Under section 129 of the MMPR the medical document provided by a health care practitioner to a person who is under their professional treatment must indicate
(a) the practitioner’s given name, surname, profession, business address and telephone number, facsimile number and email address, if applicable, the province in which the practitioner is authorized to practise their profession and the number assigned by the province to that authorization;
(b) the person’s given name, surname and date of birth;
(c) the address of the location at which the person consulted with the practitioner;
(d) the daily quantity of dried marihuana to be used by the person, expressed in grams; and
(e) the period of use.
13. Subsection 121(1) of the MMPR prohibits a licensed producer from selling or providing dried marihuana to a client or individual responsible for the client unless the licensed producer has first received a written or verbal order from the client or the individual responsible for the client.
The information required on a written order is outlined in subsection 121(2) of the MMPR. This information includes, in part, the client’s name, date of birth, shipping address specified in their registration document and unique identifier, and the quantity and brand name of the dried marihuana being ordered.
Where a licensed producer receives a verbal order from a registered client subsection 121(3) and section 137 of the MMPR require the licensed producer to record the order number, the date the order was received and the information required on the written order under subsection 121(2) of the MMPR.
14. Effective August 24, 2016, the MMPR were repealed.
August 24, 2016 to present
15. On August 24, 2016, the ACMPR came into force and replaced the MMPR (Footnote 5). The ACMPR authorize:
- the possession of dried or fresh marihuana and cannabis oil for medical purposes by individuals who have the support of an authorized health care practitioner;
- the production, sale and distribution of dried or fresh marihuana, cannabis oil or starting materials (seeds and plants) by licensed producers to individuals who can possess it; and
- the production of limited amounts of cannabis by individuals for their own medical purpose or to designate someone to produce it for them.
16. Section 1 of the ACMPR defines the following terms for purposes of the ACMPR:
“health care practitioner” means, except in sections 123, 124 and 203, a medical practitioner or a nurse practitioner (Footnote 6).
“licensed producer” means the holder of a licence issued under section 35.
“marihuana” means the substance referred to as “Cannabis (marihuana)” in subitem 1(2) of Schedule II to the CDSA.
“medical document” means a medical document referred to in section 8.
“medical practitioner” means a person who
(a) is registered and entitled under the laws of a province to practise medicine in that province; and
(b) is not named in a notice issued under section 59 of the NCR that has not been retracted under section 60 of the NCR.
“nurse practitioner” means a nurse practitioner as defined in section 1 of the New Classes of Practitioners Regulations who
(a) is permitted to prescribe dried marihuana in the province in which they practise; and
(b) is not named in a notice issued under section 59 of the NCR that has not been retracted under section 60 of those Regulations.
17. Subsection 17(1) of the ACMPR defines the term “client” to mean a person who is registered as a client with a licensed producer under section 133 (Footnote 7) of the ACMPR.
18. Section 3 of the ACMPR outlines all persons who are authorized to possess dried or other cannabis products. In particular, under subsection 3(1) of the ACMPR a person listed in subsection 3(2) may possess fresh or dried marihuana or cannabis oil and a person listed in subsection 3(3) may possess cannabis if the person has obtained it
(a) in accordance with the ACMPR;
(b) in the course of activities performed in connection with the enforcement or administration of any Act or its regulations;
(c) from a person who is exempt under section 56 of the CDSA from the application of subsection 5(1) of the CDSA with respect to that substance; or
(d) in the case referred to in subparagraph 3(2)(a)(iii) of the ACMPR, under subsection 65(2.1) of the NCR.
19. Under subsection 3(2) of the ACMPR the following persons may possess fresh or dried marihuana or cannabis oil
(a) a person who has obtained the substance for their own medical purposes or for those of another individual for whom they are responsible
(i) from a licensed producer,
(ii) from a health care practitioner in the course of treatment for a medical condition, or
(iii) from a hospital, under subsection 65(2.1) of the NCR;
(b) a person who requires the substance for the practice of their profession as a health care practitioner in the province in which they have that possession; or
(c) a hospital employee, if they possess the substance for the purposes of and in connection with their employment.
20. Under subsection 3(3) of the ACMPR the following persons may possess cannabis:
(a) a person who has obtained cannabis for their own medical purposes by producing it as a registered person;
(b) a person who has obtained cannabis — for their own medical purposes or for those of another individual for whom they are responsible — from a designated person;
(c) a person who requires cannabis for their business as a licensed producer and who possesses it in accordance with section 22 of the ACMPR;
(d) a person who requires cannabis for their business as a licensed dealer;
(e) a person who is employed as an inspector, an analyst, a peace officer, a member of the Royal Canadian Mounted Police or a member of the technical or scientific staff of a department of the Government of Canada or of the government of a province and who possesses the cannabis for the purposes of and in connection with their employment; or
(f) a person who is acting as the agent or mandatary of a person whom they have reasonable grounds to believe is a person referred to in paragraph (e) and who possesses the cannabis for the purpose of assisting that person in the administration or enforcement of any Act or its regulations.
21. Section 22 of the ACMPR outlines the limited activities a licensed producer is authorized to engage in. In particular, under subsection 22(4) of the ACMPR a licensed producer may
(a) sell or provide fresh or dried marihuana or cannabis oil to
(i) a client of that producer or an individual who is responsible for the client,
(ii) a hospital employee, if the possession of the substance is for the purposes of and in connection with their employment, or
(iii) a person to whom an exemption relating to the substance has been granted under section 56 of the CDSA; and
(b) ship fresh or dried marihuana or cannabis oil to a health care practitioner in the case referred to in subparagraph 130(1)(f)(iii) of the ACMPR.
22. Under subsection 22(5) of the ACMPR a licensed producer may sell or provide marihuana plants or seeds to a client who is registered with them on the basis of a registration with the Minister of Health made under Part 2 of the ACMPR or to an individual who is responsible for the client.
23. Sections 129 to 130 of the ACMPR outline the requirements an individual and a licensed producer must meet for an individual to become a client of a licensed producer. Before registering an individual as a client, section 130 of the ACMPR requires a licensed producer to obtain from the individual or individual responsible for the individual an application containing prescribed information including the individual’s name, date of birth, address of residence, and shipping address.
An individual must include with the application the original of their medical document or a copy of their registration certificate issued by the Minister of Health under Part 2 of the ACMPR. Under section 8 of the ACMPR a medical document provided by a health care practitioner to a person who is under their professional treatment must indicate
(a) the practitioner’s given name, surname, profession, business address and telephone number, the province in which they are authorized to practise their profession and the number assigned by the province to that authorization and, if applicable, their facsimile number and email address;
(b) the person’s given name, surname and date of birth;
(c) the address of the location at which the person consulted with the practitioner;
(d) the daily quantity of dried marihuana, expressed in grams, that the practitioner authorizes for the person; and
(e) the period of use.
Under subsection 79(1) of the ACMPR a licensed producer who sells or provides fresh marihuana or cannabis oil under subsection 22(4) of the ACMPR must determine the quantity of the marihuana or oil that is equivalent to one gram of dried marihuana.
24. Sections 174 to 186 of the ACMPR outline the requirements and process an individual is required to undergo if the individual is applying to produce cannabis for their own medical purposes or to have it produced for them by a designated person.
25. Under subsection 143(1) of the ACMPR a licensed producer is prohibited from selling or providing dried or fresh marihuana, cannabis oil or marihuana plants or seeds to a client or individual responsible for the client unless the licensed producer has first received a written or verbal order from the client or individual responsible for that client.
The information required on a written order is outlined in subsection 143(2) of the ACMPR. This information includes, in part, the client’s name, date of birth, shipping address specified in their registration document, and unique identifier. It also includes the name of the substance being ordered and its quantity and brand name.
Where a licensed producer receives a verbal order from a registered client subsection 143(3) and section 155 of the ACMPR require the licensed producer to record the order number, the date the order was received and the information required on the written order under subsection 143(2) of the ACMPR.
RULING REQUESTED
You would like to know whether supplies of medical cannabis made by the Business are zero-rated under paragraph 2(d) of Part I of Schedule VI.
RULING GIVEN
Based on the facts set out above, we rule that supplies of dried marihuana made by the Business in accordance with the MMPR between April 1, 2014 and August 23, 2016 are subject to GST/HST as the supplies are not zero-rated under Part I of Schedule VI.
In addition, we rule that supplies of dried marihuana, fresh marihuana and cannabis oil made by the Business in accordance with the ACMPR on or after August 24, 2016 are subject to GST/HST as the supplies are not zero-rated under Part I of Schedule VI.
EXPLANATION
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. Exempt supplies are not subject to the GST/HST and are included in Schedule V. Zero-rated supplies are included in Schedule VI.
Part I of Schedule VI contains provisions that zero-rate a broad range of drugs and substances that are regulated under federal legislation. Sections 2 and 3 of Part I of Schedule VI are relevant in this ruling.
Paragraph 2(d) of Part I of Schedule VI zero-rates
a drug that contains a substance included in the schedule to the Narcotic Control Regulations, other than a drug or mixture of drugs that may, pursuant to the Controlled Drugs and Substances Act or regulations made under that Act, be sold to a consumer with neither a prescription nor an exemption by the Minister of Health in respect of the sale,
but not including a supply of a drug or substance when it is labelled or supplied for agriculture of veterinary use only.
Section 1 of Part I of Schedule VI defines the term “prescription” to mean
a written or verbal order, given to a pharmacist (Footnote 8) by a medical practitioner or authorized individual, directing that a stated amount of a drug or mixture of drugs specified in the order be dispensed for the individual named in the order.
Section 3 of Part I of Schedule VI zero-rates
a supply of a drug when the drug is for human use and is dispensed
(a) by a medical practitioner to an individual for the personal consumption or use of the individual or an individual related thereto; or
(b) on the prescription of a medical practitioner or authorized individual for the personal consumption or use of the individual named in the prescription.
Paragraph 2(d) of Part I of Schedule VI
For a sale of dried marihuana or other cannabis product to be zero-rated under paragraph 2(d) of Part I of Schedule VI, the (former) MMPR and the ACMPR must require the sale of dried marihuana or other cannabis products to a consumer by a licensed producer to be made on a prescription or an exemption from the Minister of Health. In other words, a registered client must provide their licensed producer with a prescription or an exemption by the Minister of Health for paragraph 2(d) of Part I of Schedule VI to apply.
To obtain dried marihuana and other cannabis products from a licensed producer under the (former) MMPR and ACMPR an individual is required to become a registered client of a licensed producer and thus submit the original of their medical document to that licensed producer. Although under the (former) MMPR and the ACMPR a medical document contains information that may be similar to that found on a prescription, a medical document does not meet the definition of the term “prescription” in section 1 of Part I of Schedule VI.
The definition of prescription in section 1 of Part I of Schedule VI requires a written or verbal order be given to a pharmacist for purposes of dispensing a stated amount of dried marihuana or other cannabis products. There is no legal authority in the (former) MMPR or the ACMPR for a pharmacist to possess, sell, or dispense dried or fresh marihuana or cannabis oil for medical purposes to an individual consumer, regardless of whether or not a physician or nurse practitioner is authorized by its regulatory body to prescribe these products. Therefore, this requirement cannot be met.
In addition, where a client submits an online or telephone order (Footnote 9) when purchasing dried marihuana or other cannabis products from a licensed producer, it is our view that the online/verbal order is akin to an order form. For the reasons outlined above, the online/verbal order is not a prescription for GST/HST purposes.
Paragraph 2(d) of Part I of Schedule VI also zero-rates sales of dried marihuana sold with an exemption under the CDSA by the Minister of Health. Section 56 of the CDSA exempts a person or class of persons or any controlled substance from the provisions in the CDSA and its regulations. However, there is no exemption granted by the Minister of Health applicable to the sale of dried marihuana and other cannabis products by a licensed producer to a registered client. The (former) MMPR and ACMPR are subordinate legislation promulgated by the Governor in Council on the recommendation of the Minister of Health and as such, do not constitute an exemption granted by the Minister of Health.
As dried marihuana, fresh marihuana, and cannabis oil can be sold to a consumer without a prescription or an exemption from the Minister of Health, sales of these products are not zero-rated under paragraph 2(d) of Part I of Schedule VI.
Section 3 of Part I of Schedule VI
With regard to paragraph 3(b) of Part I of Schedule VI of the ETA, a drug is zero-rated if it is dispensed on the prescription of a medical practitioner or authorized individual for the personal consumption or use of the individual named in the prescription. As discussed above, a medical document and a written/verbal order are not a prescription as defined in section 1 of Part I of Schedule VI. Therefore, paragraph 3(b) of Part I of Schedule VI cannot apply to zero-rate sales of dried marihuana or other cannabis products in this circumstance.
There are no other provisions in the ETA to zero-rate supplies of dried marihuana or other cannabis products by a licensed producer to a registered client. Therefore, sales of these products are subject to the GST/HST whether made under the (former) MMPR or under the ACMPR.
Although you did not inquire about the application of GST/HST to supplies of marihuana plants and seeds, we offer the following information for your reference.
Certain supplies of industrial hemp products are zero-rated under section 3.1 of Part IV of Schedule VI when supplied by a producer licensed pursuant to the Industrial Hemp Regulations, SOR/98-156 (IHR) under the CDSA.
The supply of grain or seeds and mature stalks having no leaves, flowers, seeds, or branches, of hemp plants of the genera Cannabis by a licensed producer to a client is zero-rated. In the case of viable grain or seeds the supply is only zero-rated under section 3.1 of Part IV of Schedule VI where the grain or seeds are included in the definition of industrial hemp under the IHR and the supply is made in accordance with the CDSA.
Section 1 of the IHR defines the term “industrial hemp” to mean the plants and plant parts of the genera Cannabis, the leaves and flowering heads of which do not contain more than 0.3% THC w/w, and includes the derivatives of such plants and plant parts. It also includes the derivatives of non-viable cannabis seed.
Marihuana seeds supplied by a licensed producer are not included in the above definition of industrial hemp if they are culled from a marihuana plant which has a THC level above 0.3% THC w/w. Sales of such marihuana seeds and marihuana plants are subject to the GST/HST.
In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, the CRA is bound by the ruling(s) given in this letter provided that: none of the issues discussed in the ruling(s) are currently under audit, objection, or appeal; no future changes to the ETA, regulations or the CRA’s interpretative policy affect its validity; and all relevant facts and transactions have been fully and accurately disclosed. 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 Sales of dried marihuana and other cannabis products made by the Business commenced after April 1, 2014.
2 The term “health care practitioner” is defined in section 1 of the Marihuana for Medical Purposes Regulations, SOR/2013-119 (MMPR) and the Access to Cannabis for Medical Purposes Regulations, SOR/2016-230 (ACMPR) to mean a medical practitioner or a nurse practitioner.
3 A section 56 exemption was issued as a result of a Federal Court Order granted on March 21, 2014 in Allard v Canada, 2014 FC 280. Individuals who were previously authorized to possess and/or produce marihuana under the former Marihuana Medical Access Regulations, SOR/2001-227 and who meet the terms of the Federal Court injunction order may continue to do so until the Court orders otherwise.
4 Subsection 111(1) of the MMPR authorizes a licensed producer to register an applicant as a client. Under subsection 111(2) of the MMPR a licensed producer must send the client a registration document and information that will permit the client to use a unique identifier for purposes of ordering dried marihuana.
5 As a result of the ACMPR, provisions and definitions in the FDA, FDR, CDSA and the NCR that previously referenced only dried marihuana were updated to reflect the inclusion of fresh marihuana, cannabis oil, and marihuana seeds and plants.
6 Section 122 of the ACMPR states:
In sections 123 and 124, health care practitioner means
(a) a person who is, or was, registered and entitled under the laws of a province to practise medicine in that province; or
(b) a person who is, or was, a nurse practitioner as defined in section 1 of the New Classes of Practitioners Regulations and who is, or was, permitted to prescribe dried marihuana in the province in which they practise or practised.
7 Subsection 133(1) of the ACMPR authorizes a licensed producer to register an applicant as a client. Under subsection 133(2) of the ACMPR a licensed producer must send the client a registration document and information that will permit the client to use a unique identifier for purposes of ordering fresh or dried marihuana, cannabis oil or marihuana plants or seeds.
8 Section 1 of Part I of Schedule VI also defines a pharmacist to mean a person who is entitled under the laws of a province to practise the profession of pharmacy.
9 As required pursuant to subsection 121(1) of the (former) MMPR and subsection 143(1) of the ACMPR.
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