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: 185732
Dear [Client]:
Subject: GST/HST RULING
Application of GST/HST to natural health products
Thank you for your fax of [mm/dd/yyyy], concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to the sale of […][the Product], a natural health product. 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 following:
1. […].
2. Health Canada classifies [the Product] as a natural health product and has assigned the product a Natural Product Number ([…]) in Health Canada’s Licensed Natural Health Products Database (LNHPD). The Corporation is listed as the licence holder.
[…]
[…]
[…]. The database indicates that [the Product] is available over-the-counter in a powder form.
3. […]
[…].
4. […].
5. […].
[…].
6. The term “drug” is defined in the Food and Drugs Act (FDA) to include
“any substance or mixture of substances manufactured, sold or represented for use in
(a) the diagnosis, treatment, mitigation or prevention of a disease, disorder or abnormal physical state, or its symptoms, in human beings or animals,
(b) restoring, correcting or modifying organic functions in human beings or animals, or
(c) disinfection in premises in which food is manufactured, prepared or kept;?(drogue)”
7. Division 1 of the Food and Drug Regulations, CRC, c. 870 (FDR) regulate the sale and importation of drugs for human and veterinary use. In particular, subsection C.01.014(1) of the FDR states that no manufacturer shall sell a drug in dosage form unless a drug identification number (DIN) has been assigned for that drug and the assignment of the number has not been cancelled pursuant to section C.01.014.6.
Subsection C.01.014(2) states that subsection (1) does not apply in respect of a veterinary health product, a study drug as defined in section C.03.301 or a medicated feed as defined in subsection 2(1) of the Feeds Regulations, 1983.
8. [The Product] does not have a DIN for purposes of the FDA and is not a product listed in subsection C.01.014(2).
9. In Ontario, the Regulated Health Professions Act, 1991 (RHPA) lists the controlled acts that can only be done by members of certain authorized professions. Section 27 of this act lists the controlled acts. Paragraph 27(2)(8) of the RHPA states that “Prescribing, dispensing, selling or compounding a drug as defined in the Drug and Pharmacies Regulation Act, RSO 1990 (DPRA), or supervising the part of a pharmacy where such drugs are kept” are controlled acts.
10. In Ontario, the scope of practice for the profession of pharmacy is contained in section 3 of the Pharmacy Act, 1991 (PA). Section 3 states
“The practice of pharmacy is,
(a) the custody, compounding, dispensing and prescribing of drugs;
(b) the provision of health care aids and devices;
(c) the provision of information and education related to the use of anything mentioned in clauses (a) and (b); and
(d) the promotion of health, prevention and treatment of disease, disorders and dysfunctions through monitoring and management of medication therapy. 2009, c. 26, s. 21 (1)”
11. The term “drug” is defined in the DPRA to mean
any substance or preparation containing any substance,
(a) manufactured, sold or represented for use in,
(i) the diagnosis, treatment, mitigation or prevention of a disease, disorder, abnormal physical or mental state or the symptoms thereof, in humans, animals or fowl, or
(ii) restoring, correcting or modifying functions in humans, animals or fowl,
(b) referred to in Schedule I, II or III,
(c) listed in a publication named by the regulations, or
(d) named in the regulations,
but does not include,
(e) any substance or preparation referred to in clause (a), (b), (c) or (d) manufactured, offered for sale or sold as, or as part of, a food, drink or cosmetic,
(f) any “natural health product” as defined from time to time by the Natural Health Products Regulations under the Food and Drugs Act (Canada), unless the product is a substance that is identified in the regulations as being a drug for the purposes of this Act despite this clause, either specifically or by its membership in a class or its listing or identification in a publication,
(f.1)cannabis, other than,
(i) a drug containing cannabis to which the Cannabis Regulations (Canada) apply,
(ii) cannabis obtained for medical purposes in accordance with Part 14 of those Regulations or in accordance with a court order, and
(iii) cannabis that is identified in the regulations as being a drug for the purposes of this Act despite this clause,
(g) a substance or preparation named in Schedule U,
(h) a substance or preparation listed in a publication named by the regulations, or
(i) a substance or preparation that the regulations provide is not a drug; (“médicament”)
RULING REQUESTED
You would like to know whether supplies of [the Product] are zero-rated under section 3 of Part I of Schedule VI, when prescribed by a licensed physician and dispensed by a licensed pharmacist.
RULING GIVEN
Based on the facts set out above, we rule that supplies of [the Product] are not zero-rated pursuant to section 3 of Part I of Schedule VI and are subject to the GST/HST at the applicable rate depending on the province in which the supply is made. We understand that the formulation of [the Product] is under review, we are issuing this ruling based on the current formulation. It will be a question of fact if a change in the formulation affects the tax status of supplies of [the Product].
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 supplies of a broad range of drugs and substances.
Section 3 of Part I of Schedule VI to the ETA 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 3(b) is the relevant provision for the transaction described in your request; the supply of [the Product] when prescribed by a licensed physician and dispensed by a licensed pharmacist. To be zero-rated pursuant to paragraph 3(b) a supply must meet the following conditions:
- the supply must be a supply of a drug for human use, and
- the drug must be dispensed on the prescription of a medical practitioner or authorized individual for the consumption or use of the individual named in the prescription.
Section 1 of Part I of Schedule VI defines several of the terms used in paragraph 3(b) including “prescription”, “medical practitioner”, “authorized individual”, and “pharmacist”:
- “prescription” is defined to mean a written or verbal order, given to a pharmacist by a medical practitioner or authorized individual, directing that a stated amount of any drug or mixture of drugs specified in the order be dispensed for the individual named in the order”;
- “medical practitioner” is defined to mean “a person who is entitled under the laws of a province to practise the profession of medicine or dentistry”;
- “authorized individual” is defined as “an individual, other than a medical practitioner, who is authorized under the laws of a province to make an order directing that a stated amount of a drug or mixture of drugs specified in the order be dispensed for an individual named in the order”; and
- “pharmacist” is defined to mean “a person who is entitled under the laws of a province to practice the profession of pharmacy”.
Based on the definitions in section 1, for a supply to be zero-rated pursuant to paragraph 3(b) of Part I of Schedule VI the supply must be a supply of a drug that is dispensed by a pharmacist on the order of a medical practitioner or authorized individual for the personal consumption or use of the individual named in the prescription.
The term “drug” is not defined in the ETA. However, the CRA developed the following to assist in determining whether a product or substance is a drug for purposes of section 3 of Part I of Schedule VI. This position is based on a review of federal, provincial, dictionary and court interpretations of the term “drug”, including the definition of “drug” in section 2 of the FDA. To be a drug under section 3 of Part I of Schedule VI it is our view that a product or substance must:
- have a DIN for purposes of the FDA;
- be intended for human use, as demonstrated by the product labeling and marketing scheme;
- for use in the diagnosis, treatment, mitigation or prevention of a disease, disorder, or other abnormal condition, for the relief of pain or suffering, or to control or improve any physiologic or pathologic state (i.e., therapeutic use), as demonstrated by the product labeling and marketing scheme; and
- be used in or on the living body, (i.e., in vivo).
During your discussions on [mm/dd/yyyy], with […][a CRA official], you asked why the CRA requires a product to have a DIN for a supply of the product to be zero-rated under section 3 of Part I of Schedule VI when this legislative provision does not contain wording to that effect and, in your view, the product meets the definition of “drug” in section 2 of the FDA.
Section 3 of Part I of Schedule VI applies to zero-rate certain supplies of a drug, including the sale, where the drug is dispensed in the specified conditions. As indicated above, subsection C.01.014(1) of the FDR provides that no manufacturer shall sell a drug in dosage form unless the drug has a valid DIN or the drug is excluded from this requirement by subsection C.01.014(2). Generally, a drug product sold in Canada without a DIN is not in compliance with Canadian law. Pursuant to section 3 of the Natural Health Product Regulations, the provisions of the FDR do not apply to natural health products. This demonstrates that sales of natural health products are sales of separate products and are not sales of drugs under the FDR. As such, it is our view that Parliament’s use of the term “drug” in section 3 of Part I of Schedule VI implies that this section can only apply to zero-rate the sale of drugs that have a DIN, even though this requirement is not explicitly stated.
Furthermore, the CRA cannot adopt an interpretation of the term “drug” that results in the contravention of federal legislation governing the sale of drugs in Canada. The interpretation adopted by the CRA for purposes of section 3 of Part I of Schedule VI must create a meaning that reflects the purpose of the ETA and the context in which a drug is sold in Canada. Relying solely on the definition of “drug” in section 2 of the FDA as you suggest does not meet these objectives. Therefore, as [the Product] does not have a DIN supplies of [the Product] cannot fall within section 3 of Part I of Schedule VI, regardless of whether the product meets the definition of the term “drug” under section 2 of the FDA.
Additionally, even if natural health products were considered to be drugs for purposes of section 3 of Part I of Schedule VI, this would not result in supplies of natural health products being zero-rated by this section. The term “drug” cannot be taken in isolation, the context that the term is used in the provision must be considered when determining its meaning. Paragraph 3(b) also contains the condition that the drug be dispensed by a pharmacist. This gives the context that the types of drugs that are to be zero-rated are drugs that are dispensed by a pharmacist acting in the capacity of a pharmacist.
The term “dispense” is not defined in the ETA. The definitions of “medical practitioner” and “pharmacist” in section 1 of Part I of Schedule VI indicate that the ETA recognizes that the profession of pharmacy is regulated by the provinces and territories. As the profession of pharmacy is regulated by the provinces and territories, we would look to legislation in the applicable jurisdiction for the rules regarding the dispensing of drugs by a pharmacist. Although the regulations are not identical for each province and territory, there are common features among the different jurisdictions. Generally, dispensing drugs is a restricted or controlled act that can only be performed by members of specific authorized health professions. The provincial legislation also contains rules concerning where and how drugs are sold. Drugs can be broken down into the following categories based on these rules:
- drugs that can only be dispensed by a pharmacist on a prescription,
- drugs that do not need a prescription but are required to be dispensed by a pharmacist,
- drugs that can be self-selected by a customer but can only be sold if there is a pharmacist available for consultation, and
- drugs that can be sold by a non-pharmacist to anyone.
The provincial regulations also describe the packaging, labeling and recording requirements for drugs dispensed on a prescription by a pharmacist.
The requirement in paragraph 3(b) that the drug be dispensed by pharmacist limits the zero-rating to drugs that are required to be dispensed by a pharmacist. This would not include drugs or other products that are not required to be dispensed by a pharmacist, even if the pharmacist complies with the packaging, labeling and recording requirements applicable to a drug required to be dispensed by a pharmacist. If the provision was interpreted to include all drugs it would create a situation where the tax relief would be dependent on the policies of the retailer where the product was purchased rather than the product itself. Legislation in the Province of Ontario can be used to demonstrate how a pharmacist is acting in the capacity of their profession when dispensing certain drugs.
In Ontario, the profession of pharmacy is governed by the RHPA, the PA and the DPRA and the regulations to those Acts. The RHPA sets out the controlled acts that are restricted to members of certain health professions. Paragraph 27(2)(8) of the RHPA states that “Prescribing, dispensing, selling or compounding a drug as defined in the Drug and Pharmacies Regulation Act, or supervising the part of a pharmacy where such drugs are kept” are controlled acts. Subsection 4(1) of the PA allows that in the course of engaging in the practice of pharmacy a pharmacist may dispense, sell or compound a drug or supervise the part of a pharmacy where drugs are kept.
Section 3 of the PA contains the scope of practice for the profession of pharmacy, it states:
“The practice of pharmacy is,
(e) the custody, compounding, dispensing and prescribing of drugs;
(f) the provision of health care aids and devices;
(g) the provision of information and education related to the use of anything mentioned in clauses (a) and (b); and
(h) the promotion of health, prevention and treatment of disease, disorders and dysfunctions through monitoring and management of medication therapy. 2009, c. 26, s. 21 (1)”
Both the RHPA and the PA use the definition of “drug” in the DPRA. The definition of “drug” in the DPRA excludes “natural health products” as defined in the Natural Health Products Regulations. Therefore, the controlled acts from the RHPA and the scope of practice from the PA refer to the dispensing of drugs from which natural health products are excluded. A pharmacist is acting in their capacity as a pharmacist when they are involved in activities included in the scope of practice for a pharmacist or the authorized controlled acts for a pharmacist. As these activities involve the dispensing of drugs, other than natural health products, activities involving natural health products would not be considered to be done in the capacity of a pharmacist. Therefore, the selling or distribution of a natural health product would not be considered to be the dispensing of a drug by a pharmacist for purposes of paragraph 3(b).
The legislation in Ontario regarding the sale of drugs is similar to the legislation in other jurisdictions. Through the National Association of Pharmacy Regulatory Authorities and the National Drug Schedules the conditions of sale for drug products have been aligned across the provinces. Drugs that are required to be dispensed by a pharmacist in one province or territory are generally required to be dispensed by a pharmacist in all of the other provinces and territories as well. Natural health products are not included in the National Drug Schedules.
Therefore, the meaning of the term “drug” for purposes of section 3 of Part I of Schedule VI is restricted by the other terms in the section. Not all products that fall under the FDA definition of “drug” need to be dispensed (or sold) by a pharmacist. The CRA’s interpretation of the meaning of “drug” for purposes of section 3 of Part I of Schedule VI is reflective of the types of products that are dispensed by a pharmacist acting in the capacity of a pharmacist.
We understand your concern that natural health products should be considered zero-rated drugs under section 3 of Part I of Schedule VI when sold on the prescription of a medical practitioner. The CRA is responsible for the administration of the ETA and its Regulations, as passed by Parliament. An amendment to the ETA would be required to treat the sale of natural health products as a zero-rated supplies. Legislative amendments are a matter of tax policy, which falls within the responsibility of the Department of Finance Canada. We have advised officials of that Department of your concern regarding the tax status of this product.
In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, the Canada Revenue Agency (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 613-670-7932. 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,
Art Blommesteijn
Health Care Sectors Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate
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