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: 148089
Dear [Client]:
Subject: GST/HST RULING
Application of GST/HST to certain in vitro diagnostic test kits
Thank you for your letter of [mm/dd/yyyy], concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to in vitro diagnostic test kit[s] used to test for the presence of drugs-of-abuse, pregnancy and Strep A.
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 [mm/dd/yyyy], the product inserts provided by […] (the Manufacturer), and our phone discussion […], our understanding of the facts is as follows:
1. […] (the Company) […] [sells] medical devices and is located in […][Canada].
2. The Company retails certain in vitro diagnostic test kits. Specifically, the Company retails the following in vitro diagnostic tests:
* […][Drugs of Abuse Test Panel]
* […][Pregnancy Test Strip]
* […][Strep A Test Device]
Drug test
3. The [Drugs of Abuse Test Panel] is designed for the simultaneous, qualitative detection of multiple drugs-of-abuse and metabolites in human urine samples.
This [Drugs of Abuse Test Panel] is a lateral flow chromatographic immunoassay that can detect the presence of the following drugs-of-abuse without the need of instruments: […]
4. […] [Describes parts of the [Drugs of Abuse Test Panel] and how to read the results]
Each test in the [Drugs of Abuse Test Panel] contains mouse monoclonal antibody-coupled particles and corresponding drug-protein conjugates. A goat antibody is employed in each control line.
[…] [Describes how the test is performed and how it works]
5. […] [Describes how to read the test results]
6. […].
7. The [Drugs of Abuse Test Panel] is labelled for in vitro diagnostic use only. […].
Pregnancy tests
8. […] (the Pregnancy Test Strip) is designed for the qualitative detection of human chorionic gonadotropin (hCG) in urine to aid in the early detection of pregnancy.
9. The Pregnancy Test Strip is a rapid chromatographic immunoassay which utilizes a combination of antibodies including mouse monoclonal anti-hCG antibodies and goat polyclonal anti-hCG antibodies to selectively detect elevated levels of hCG.
[…] [Describes & explains test procedures]
10. […] [Describes & explains test procedures and how to read test results]
11. The Pregnancy Test Strip is labelled for in vitro diagnostic use only.
Strep A tests
12. The [Strep A Test Device] [is] designed for the qualitative detection of Strep A carbohydrate antigen in a throat swab to aid in the diagnosis of Group A Streptococcal infection.
13. The test is a lateral flow immunoassay and an antibody specific to Strep A carbohydrate antigen is coated on the test line region of the [Strep A Test Device].
Based on our phone conversation on [mm/dd/yyyy], you confirmed that the [Strep A Test Device] contains polyclonal antibodies.
14. […] [Describes test procedure]
[…] [Describes & explains test procedures and how to read test results]
15. […] [Interpreting test results].
16. […] [Explains Test (quality) Controls]
17. The [Strep A Test Device] is labelled for in vitro diagnostic use only.
18. 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 SOR/98-202 (MD Regulations) and the Food and Drug Regulations CRC, c. 870 (FD Regulations).
19. 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.
20. 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. The in vitro diagnostic test kits subject to this ruling are classified as follows:
[Drugs of Abuse Test Panel] (Class III medical device)
[Pregnancy Test Strip] (Class II medical device)
[Strep A Test Device] (Class III medical device)
21. The Medical Device Active Licence Listing (MDALL) web page of Health Canada contains information on all medical devices for sale in Canada for which licences have been issued.
22. Section 26 of the MD Regulations provides that no person can import or sell a Class II, III or IV medical device unless the manufacturer of the device holds a licence in respect of that device. The Licence No. issued by Health Canada for each in vitro diagnostic test kit subject to this ruling are as follows: […]
RULING REQUESTED
You would like to know whether:
i. a supply of the [Drugs of Abuse Test Panel] is zero-rated.
ii. a supply of the [Pregnancy Test Strip] is zero-rated.
iii. a supply of the [Strep A Test Device] is zero-rated.
RULING GIVEN
Based on the facts set out above, we rule that:
i. A supply of the [Drugs of Abuse Test Panel] is zero-rated under section 2 of Part I of Schedule VI.
ii. A supply of the [Pregnancy Test Strip] is not zero-rated under Part I of Schedule VI and is subject to tax at a rate of 5%, 13%, 14% or 15%, depending on the place of supply.
iii. A supply of the [Strep A Test Device] is zero-rated under section 2 of Part I of Schedule VI.
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% GST, 13%, 14%, or 15% HST, 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”.
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.
Drug tests
The [Drugs of Abuse Test Panels] are used to measure the presence and level of certain drugs-of-abuse in urine specimens. The [Drugs of Abuse Test Panels] are not labelled or supplied for agricultural or veterinary use only and include a reagent that is a monoclonal or polyclonal antibody.
The terms “diagnose” and “disease” are not defined in the ETA, the FDA, MD Regulations or the FD Regulations.
Dorland’s Illustrated Medical Dictionary 30th edn. (Dorland’s). Defines the term “diagnose”:
To make a diagnosis of; to recognize the nature of an attack of disease
Dorland’s defines the term “disease” as:
Any deviation from or interruption of the normal structure or function of a part, organ, or system of the body as manifested by characteristic symptoms and signs; the etiology, pathology and prognosis may be known or unknown.
Black’s Law Dictionary (6th edn.) (Blacks) defines the term “disease” as:
Deviation from the healthy or normal condition of any of the functions or tissues of the body.
The term “diagnosis”, when used in the medical sense, relates to the discovery, identification or recognition of a disease. Therefore, an in vitro diagnostic test must detect or identify a disease. In our view, the [Drugs of Abuse Test Panel] can be used to test for the presence of a substance that indicates whether or not an individual has consumed or ingested certain drugs-of-abuse. Testing for whether certain drugs-of-abuse have been ingested is one of many tests used by a medical practitioner for identifying a drug addiction. Therefore, the [Drugs of Abuse Test Panels] are a drug for purposes of the ETA and a supply of which is zero-rated under paragraph 2(a) of Part I of Schedule VI.
Pregnancy tests
Generally, the intended use of the [Pregnancy Test Strips] is for the qualitative detection of hCG in urine or serum specimens exclusively for the early detection of human pregnancy. The [Pregnancy Test Strips] 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 Test Strips] diagnose pregnancy 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 Strips] cannot be a drug if the [Pregnancy Test Strips] 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 Test Strips] are a device and not a drug for purposes of the ETA. Therefore, the [Pregnancy Test Strips] 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 Strips], 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.
Strep tests
The [Strep A Test Devices] are used to detect Strep A antigen in a throat swab specimen as the presence of this antigen is indicative of Group A Streptococcal infection. The [Strep A Test Devices] are not labelled or supplied for agricultural or veterinary use only and contain one or more substances that are monoclonal and polyclonal antibodies. Considering the approach taken in Le Gardeur, it is reasonable to conclude that the [Strep A Test Device] can be described by the term “drug” as it appears in paragraph 2(a) of Part I of Schedule VI. Accordingly, a supply of the [Strep A Test Device] is zero-rated under paragraph 2(a) of Part I of Schedule VI.
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.
Amounts paid as or on account of tax
Where a supplier has charged or collected an excess amount as or on account of tax on supplies that qualify for zero-rating, the supplier may refund or credit the excess amount to the recipient in accordance with section 232. If the supplier refunds or credits the amounts collected as GST/HST, it must do so within two years after the day the amount was charged or collected and it must provide the recipient with a credit note containing prescribed information.
Alternatively, persons who have paid an amount as GST/HST on supplies that qualify for zero-rating may make an application to the CRA for a rebate of tax paid in error under section 261 using form GST189 General Application for Rebate of GST/HST (available on CRA’s website at www.cra-arc.gc.ca). The time limit to apply for this rebate is within two years after the day the amount was paid.
For more information, refer to GST/HST Memorandum Series Chapter 12.2, Refund, Adjustment, or Credit of the GST/HST under Section 232 of the Excise Tax Act and Guide RC4033, General Application for GST/HST Rebates.
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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