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: 200473
Dear [Client]:
Subject: GST/HST INTERPRETATION
Supplies of Edible Cannabis
Thank you for your [correspondence] of June 14, 2019, concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to supplies of edible cannabis.
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.
We understand the following:
1. The Cannabis Act (S.C. 2018, c. 16) will authorize the legal sale of edibles containing cannabis and cannabis concentrates on October 17, 2019. The following items will be added to Schedule 4 to the Cannabis Act (Classes of Cannabis that an Authorized Person May Sell):
- Edible cannabis;
- Cannabis extracts; and
- Cannabis topicals.
2. The Cannabis Regulations (SOR/2018-144) will be amended to add the following definitions:
(a) a substance produced by
(i) subjecting anything referred to in item 1 of Schedule 1 to the Act to extraction processing, or
(ii) synthesizing a substance that is identical to a phytocannabinoid produced by, or found in, a cannabis plant; or
(b) a substance or mixture of substances that contains or has on it a substance produced in a manner referred to in paragraph (a).
It does not include a cannabis topical or edible cannabis.”
- “cannabis topical” means a substance or mixture of substances that contains or has on it anything referred to in item 1 or 3 of Schedule 1 to the Act and that is intended for use, directly or indirectly, exclusively on external body surfaces, including hair and nails.”
- “edible cannabis” means a substance or mixture of substances that contains or has on it anything referred to in item 1 or 3 of Schedule 1 to the Act and that is intended to be consumed in the same manner as food. It does not include dried cannabis, fresh cannabis, cannabis plants or cannabis plant seeds.”
3. Subsection 2(1) of the Cannabis Act defines “cannabis” as meaning “a cannabis plant and anything referred to in Schedule 1 but does not include anything referred to in Schedule 2.”
Schedule 1 to the Cannabis Act lists the following:
1. Any part of a cannabis plant, including the phytocannabinoids produced by, or found in, such a plant, regardless of whether that part has been processed or not, other than a part of the plant referred to in Schedule 2
2. Any substance or mixture of substances that contains or has on it any part of such a plant
3. Any substance that is identical to any phytocannabinoid produced by, or found in, such a plant, regardless of how the substance was obtained.
Schedule 2 to the Cannabis Act list the following:
1. A non-viable seed of a cannabis plant
2. A mature stalk, without any leaf, flower, seed or branch, of such a plant
3. Fibre derived from a stalk referred to in item 2
4. The root or any part of the root of such a plant.
4. Section 2 of the Cannabis Regulations states “These Regulations do not apply to a holder of a licence that is subject to the Industrial Hemp Regulations, or to an applicant for such a licence.”
5. Subsection 1(2) of the Industrial Hemp Regulations (SOR/2018-145) states that for purposes of the Cannabis Act and these Regulations “industrial hemp means a cannabis plant — or any part of that plant — in which the concentration of THC is 0.3% w/w or less in the flowering heads and leaves.”
6. The Excise Act, 2001 defines the following terms:
- “cannabis” has the same meaning as in subsection 2(1) of the Cannabis Act.”
- “cannabis products” means:
(a) a product that is cannabis but that is not industrial hemp produced or imported in accordance with the Cannabis Act or the Industrial Hemp Regulations,
(b) a product that is an industrial hemp by-product,
(c) anything that is made with or contains a product described in paragraph (a) or (b), or
(d) a prescribed substance, material or thing,
but does not include a prescribed substance, material or thing.
INTERPRETATION REQUESTED
You would like to know how the GST will apply to supplies of edible cannabis when it becomes legally available for sale. In particular you would like to know if the application of the GST for cannabis edibles is impacted by the product classification and package size, if there is a distinction between products high in THC vs. those high in CBD, and if there is a distinction for medical products.
INTERPRETATION GIVEN
Based on the above information, it is our opinion that, when legally available, supplies of edible cannabis will be subject to the GST/HST at the applicable rate depending on the province in which the supply is made.
The GST/HST is a broad-based consumption tax imposed under Part IX of the ETA. Supplies of property and services made in Canada are generally subject to GST/HST at the applicable rate (5%, 13% or 15%, depending on the province in which the supply is made) unless a specific provision in the ETA applies to exempt or zero-rate the particular supply.Exempt supplies are not subject to GST/HST and are set out in Schedule V to the ETA. Zero-rated supplies are taxed at the rate of 0% and are set out in Schedule VI to the ETA.
Section 1 of Part III of Schedule VI to the ETA zero-rates supplies of food or beverages for human consumption (including sweetening agents, seasonings and other ingredients to be mixed with or used in the preparation of such food or beverages) unless an exclusion set out in paragraphs 1(a) through 1(r) applies. Paragraph 1(b) of Part III of Schedule VI to the ETA excludes from the zero-rating provision for supplies of food and beverages for human consumption, supplies of “cannabis products” as defined in section 2 of the Excise Act, 2001.
The edible cannabis products you are inquiring about are “cannabis products” as defined in the Excise Act, 2001. As such, supplies of edible cannabis are excluded from being zero-rated basic groceries by paragraph 1(b) of Part III of Schedule VI of the ETA. This exclusion is not affected by the product classifications or package sizes.
For GST/HST purposes, there is no distinction for supplies of cannabis that have higher levels of THC or CBD. Cannabis that is produced and sold pursuant to the Cannabis Act and the Cannabis Regulations must be “cannabis” as defined in that Act and also must be of one of the classes of cannabis listed in Schedule 4 to that Act. The definition of “cannabis” does not distinguish between products that have higher levels of THC or CBD. The GST/HST will apply to edible cannabis, whether it has higher levels of THC or CBD, in the same way that it applies to other supplies of cannabis.
You also asked about the application of the GST/HST to supplies of edible cannabis and if there was a distinction for medical products. The holder of a licence for sale for medical purposes is authorized to sell cannabis products. The Cannabis Regulations define the term “cannabis product” to mean “cannabis of only one of the classes that are set out in Schedule 4 to the Act — or a cannabis accessory if that accessory contains such cannabis — after it has been packaged and labelled for sale to a consumer at the retail level, but does not include a drug containing cannabis.” Non-medical (recreational) cannabis can only be purchased from provincially or territorially authorized retailers and must be of a class that is referred to in Schedule 4.
The difference between non-medical cannabis and cannabis for medical purposes is in the ways that it can be accessed, the public possession limits and the age at which cannabis can be accessed and possessed rather than the product itself. Therefore, cannabis that is in one of the classes in Schedule 4 (this will include the classes to be added to the schedule) can be sold as either non-medical cannabis or cannabis for medical purposes.
The discussion of the zero-rating provisions for drugs and cannabis below refers to cannabis for medical purposes but the concepts would also apply to non-medical cannabis and will include edible cannabis (for both medical and non-medical purposes) when it becomes legal for sale.
The zero-rating provisions for federally regulated drugs are contained in Part I of Schedule VI to the ETA. The most relevant provision in respect of cannabis is paragraph 2(b) of Part I of Schedule VI which zero-rates a supply of a drug if the drug is set out on the list established under subsection 29.1(1) of the Food and Drugs Act (The Prescription Drug List) or that belongs to a class of drugs set out on that list, other than a drug or mixture of drugs that may, under the Food and Drugs Act (R.S.C., 1985, c. F-27) or the Food and Drug Regulations (C.R.C., c. 870), be sold to a consumer without a prescription. If such a drug or mixture of drugs can be sold to a consumer without a prescription, the supply won’t be zero-rated under paragraph 2(b). However, if such a drug or mixture of drugs can’t be sold to a consumer without a prescription, the supplies are zero-rated throughout the distribution chain (that is, from manufacturer to the distributor to the pharmacist to the consumer).
In order for a supply of cannabis for medical purposes to be zero-rated, all of the conditions in paragraph 2(b) of Part I of Schedule VI must be met. The first condition contained in paragraph 2(b) of Part I of Schedule VI is that the supply must be a supply of a drug set out on the Prescription Drug List (or that belongs to a class of drugs set out on that list).
Phytocannabinoids and substances that are duplicates of such phytocannabinoids were added to the Prescription Drug List as part of the legislative changes made with the legalization of cannabis. Phytocannabinoids are cannabinoids that occur naturally in the cannabis plant and include tetrahydrocannabinol (THC) and cannabidiol (CBD). All supplies of cannabis for medical purposes contain phytocannabinoids.
It should be noted, however, that at the same time that phytocannabinoids were added to the Prescription Drug List, the Cannabis Exemption (Food and Drugs Act) Regulations (SOR/2016-231) were also enacted. Essentially, the Cannabis Exemption (Food and Drugs Act) Regulations exempt cannabis for medical purposes and non-medical cannabis that has been manufactured and sold in accordance with the Cannabis Regulations from the application of the Food and Drugs Act.
The Prescription Drug List applies to products regulated under the Food and Drugs Act. As previously mentioned, cannabis for medical purposes is exempt from the application of the Food and Drugs Act and is therefore not a drug that is set out on the Prescription Drug List, even though cannabis for medical purposes contains phytocannabinoids. Therefore, paragraph 2(b) of Part I of Schedule VI to the ETA would not apply to supplies of cannabis for medical purposes.
Additionally, even if cannabis for medical purposes were a drug included on the Prescription Drug List, it would be excluded from paragraph 2(b) of Part I of Schedule VI as it could be sold to a consumer without a prescription. The cannabis that can be sold by a holder of a licence for sale for medical purposes (i.e., a person authorized under the Cannabis Act to sell cannabis for medical purposes) can also be sold as non-medical or recreational cannabis by a holder of a licence for sale (i.e., a person authorized under the Cannabis Act to sell non-medical or recreational cannabis). Further, the CRA does not consider that a “medical document” that is signed by an authorized health care provider (which document, defined in the Cannabis Regulations, permits individuals to access cannabis for medical purposes from federally licensed producers) meets the conditions to be a prescription for GST/HST purposes and as a result, persons who access cannabis for medical purposes do so without the use of a prescription.
There are no other provisions in Part I of Schedule VI that would zero-rate the supplies of cannabis for medical purposes. As a result, supplies of cannabis for medical purposes would generally be subject to GST/HST.
In addition to cannabis for medical purposes, the Cannabis Regulations also provide the framework for the production and sale of separate products referred to as drugs containing cannabis. Based on the definition of “drug” in the Cannabis Regulations, a drug containing cannabis is a substance or a mixture of substances containing cannabis that is not a natural health product and that is represented for the diagnosis, treatment, mitigation or prevention of a disease, disorder or abnormal physical state, or its symptoms, in human beings, or restoring, correcting or modifying organic functions in human beings.
The Cannabis Regulations exclude cannabis for medical purposes from being a drug containing cannabis. For example, drugs containing cannabis are specifically excluded from the products that a holder of a licence for sale for medical purposes is authorized to possess and sell. Additionally, the holder of a licence for sale for medical purposes is not authorized for activities in relation to a drug containing cannabis.
Given the preceding, unlike the treatment provided to cannabis for medical purposes and non-medical cannabis manufactured and sold in accordance with the Cannabis Act and Cannabis Regulations, the Cannabis Exemption (Food and Drugs Act) Regulations do not exempt drugs containing cannabis from the application of the Food and Drugs Act. Drugs containing cannabis are therefore required to be approved as a prescription drug by Health Canada to be legally sold in Canada and must fulfill the requirements under both the Food and Drugs Act and the Cannabis Act.
For instance, Sativex is a drug containing cannabis that is available in Canada. This drug has received approval as a prescription drug from Health Canada. Sativex is a drug set out on the Prescription Drug List and can only be sold to a consumer with a prescription. Therefore, supplies of Sativex are zero-rated pursuant paragraph 2(b) of Part I of Schedule VI.
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 Canada Revenue Agency (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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