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, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 130730
Dear [Client]:
Subject: GST/HST INTERPRETATION – Application of GST/HST to pregnancy test kits
Thank you for your letter of November 18, 2010 concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the sale of pregnancy test kits. We apologize for the delay in our response.
The HST applies in the participating provinces at the following rates: 13% in Ontario, New Brunswick and Newfoundland and Labrador, 14% in Prince Edward Island and 15% in Nova Scotia. 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
Based on the information provided in your letter of November 18, 2010, your [correspondence] of October 24, 2012 and […][the Company] website, we understand the facts as follows:
1. The Company is a company resident in […][Province 1] that manufactures and sells diagnostic test kits pertaining to women’s health, drugs of abuse, and infectious disease.
2. In particular, the Company manufactures and sells pregnancy test kits that are generally used to test the effectiveness of fertility treatments. The Company manufactures and sells the following pregnancy test kits: […]
3. The Company’s customers generally include clinical laboratories in hospitals, physician offices and other similar settings. The Company does not sell the pregnancy test kits directly to individual consumers.
4. According to the information on the Company’s website ([…]), the intended use of the pregnancy test kits is for the qualitative detection of the human chorionic gonadotropin (hCG) hormone in urine or serum specimens for the determination of pregnancy.
5. Pregnancy tests rely on the presence of hCG, a glycoprotein that is secreted by the placenta shortly after fertilization. Women who are not pregnant do not produce hCG. The antibody technology in pregnancy tests kits is generally based on a technique called an enzyme-linked immunosorbent assay, or ELISA, which refers to the use of enzyme-linked antibodies to bind to specific antigens. The ELISA uses an enzyme with a colour substrate which generates a coloured reaction product for hCG detection.
6. The pregnancy test kits sold by the Company use a “sandwich” immunoassay test to determine the presence hCG in urine or serum. According to the information provided on the Company’s website, […][description of the test strip]
7. […][description of substances used to create the test band]
8. […][description of the chemical reaction that takes place on the test strip]
9. […][description of the chemical reaction that takes place on the test strip]
10. In Canada all medical devices and drugs are regulated federally under the Food and Drugs Act, RSC 1985, c. F-27 (FDA) and the Regulations made under that Act which include the Medical Devices Regulations (MD Regulations) SOR/98-202 and the Food and Drug Regulations CRC, c. 870 (FD Regulations). Pregnancy test kits are generally licensed by Health Canada as medical devices under the MD Regulations.
11. Products are defined as “drugs” or “devices” for purposes of the FDA. Medical devices and drugs are distinguished in terms of how they are defined in section 2 of that Act and how they are regulated under the Regulations. The term “device” covers a wide range of health products and medical instruments.
12. Medical devices are classified into one of Classes I to IV by means of the classification rules set out in Schedule 1 of the MD Regulations. Class I represents the lowest risk and Class IV represents the highest risk. Pregnancy test kits are generally classified as Class II medical devices.
13. […]
14. […] The Licence No. issued by Health Canada for each test kit is […]
15. Distributers of medical devices must obtain a Medical Device Establishment License (MDEL) through the Health Products and Food Branch Inspectorate of Health Canada. The requirement to obtain such a license is under section 44 of the MD Regulations. This section provides that no person may import or sell a medical device unless the person holds an establishment licence. An application for an establishment licence must contain specific information, which includes the name of the manufacturer of the device that is being imported or distributed.
16. The MDEL “Live Listing” web page of Health Canada is a reference tool to identify MDEL holders. Medical Device Establishment Licensing was implemented to allow users to be made aware of who is importing and/or selling medical devices in Canada. The Company’s MDEL is Licence No. […].
RULING REQUESTED
You requested a ruling to determine whether a supply of pregnancy test kits is zero-rated pursuant to paragraph 2(a) of Part I of Schedule VI in light of the Canada Revenue Agency’s (CRA) interim administrative position adopted in GST/HST Notice No. 248, Application of the GST/HST to Supplies of In Vitro Diagnostic Test Kits (Notice 248).
RULING GIVEN
Based on the information provided, pregnancy test kits are not zero-rated pursuant to paragraph 2(a) of Part I of Schedule VI in light of Notice 248. Therefore the pregnancy test kits are subject to GST/HST at the rate of 5%, 13%, 14% or 15%, depending on the place of supply.
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, objection, or appeal, 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
The general rule in section 165 is that every recipient of a taxable supply made in Canada shall pay tax calculated at the rate of 5%, 13%, 14%, or 15% (depending on the place of supply) on the value of the consideration for the supply, unless the supply is zero-rated. The tax rate in respect of a zero-rated supply is 0%. A zero-rated supply is a supply that is 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. Paragraphs 2(a) to (d.1) of Part I of Schedule VI refer to drugs or substances that are included in schedules to the FDA and its regulations and regulations made under the Controlled Drugs and Substances Act (CDSA). In order to fall within paragraphs 2(a) to (d.1) of Part I of Schedule VI, the supply in question must be that of a “drug” or, in the case of paragraph 2(c), a “drug or other substance”. Section 2 of the FDA defines the term “drug” to mean:
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;
As you are aware, the Tax Court of Canada (TCC) decided in Centre Hospitalier Le Gardeur et al v The Queen 2007 TCC 425 (Le Gardeur) that certain in vitro diagnostic test kits are zero-rated pursuant to paragraph 2(a) of Part I of Schedule VI to the ETA. Further to the TCC decision, the CRA adopted an interim administrative position, described in GST/HST Notice 248, Application of the GST/HST to Supplies of In Vitro Diagnostic Test Kits (Notice 248), whereby the supply of an in vitro diagnostic test kit is zero-rated pursuant to paragraph 2(a) of Part I of Schedule VI to the ETA if it is for use in the diagnosis of a disease in humans and it contains one or more of the following substances (which were listed in the TCC decision):
• monoclonal and polyclonal antibodies;
• blood and blood derivatives;
• snake venom; and
• micro-organisms that are not antibiotics.
Notice 248 indicates that CRA’s administrative position is temporary and that CRA will announce its decision with respect to the application of GST/HST to in vitro diagnostic products once an in-depth review of the matter has been completed.
Generally, the intended use of the pregnancy test kits is for the qualitative detection of hCG in urine or serum specimens exclusively for the early detection of human pregnancy. The pregnancy test kits are not labelled or supplied for agricultural or veterinary use only and contain monoclonal or polyclonal antibodies.
Section 2 of the FDA defines the term “device” as follows:
“device” means any article, instrument, apparatus or contrivance, including any component, part or accessory thereof, 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 a body function or the body structure of human beings or animals,
(c) the diagnosis of pregnancy in human beings or animals, or
(d) the care of human beings or animals during pregnancy and at and after birth of the offspring, including care of the offspring,
and includes a contraceptive device but does not include a drug; [Emphasis added]
Paragraph (c) of the definition of the term “device” includes any article, instrument, apparatus or contrivance that diagnosis pregnancy in human beings or animals. The pregnancy tests diagnose pregnancy in human beings and therefore are a device under the FDA. In addition, the definition of the term “device” specifically excludes “a drug”. As the definition of the term “device” specifically excludes a drug, the pregnancy test kits cannot be a drug if the pregnancy test kits are a device. It is the CRA’s view that based of the definitions of “drug” and “device” in section 2 of the FDA the pregnancy tests are a device and not a drug for purposes of the ETA. Therefore, the pregnancy tests are not zero-rated under paragraph 2(a) of Part I of Schedule VI.
The Le Gardeur decision did not contemplate circumstances in which a product was specifically included in paragraph (c) of the definition of the term “device” in section 2 of the FDA. As such, the principles set out in Le Gardeur cannot be applied in this case. As there are no other provisions in the ETA to zero-rate (or exempt) the pregnancy test kits, a supply of such will be subject to GST/HST at the rate of 5%, 13%, 14% or 15%, depending on the place of supply.
As indicated above, the CRA is reviewing its policy regarding the application of GST/HST to in vitro diagnostic test kits and whether certain in vitro diagnostic test kits diagnose a disease and are therefore “drugs” as defined in section 2 of the FDA. Health Canada administers the FDA and its Regulations. Our review of our policy will include consultations with and recommendations from Health Canada.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-954-7952. 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
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