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.
[Addressee]
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 11th floor
320 Queen Street
Ottawa ON K1A 0L5
Case Number: 203725
Business Number: […]
Dear [Client]:
Subject: GST/HST RULING
Application of GST/HST to supplies of marihuana by a Cooperative
Thank you for your letter of September 26, 2019, concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to supplies of marihuana by a Cooperative. We apologize for delay.
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:
1. […] (the “Cooperative”) began operating in [mm/yyyy] and […].
2. The Cooperative was not licensed by Health Canada to sell fresh and dried marihuana, cannabis oil or marihuana seeds and was not listed on Health Canada’s website as a licenced producer.
3. The Cooperative was incorporated under […][the relevant provincial legislation] on [mm/dd/yyyy] and the Cooperative has […] shareholders.
4. The Cooperative supplied marihuana and other cannabis products between the period of [mm/dd/yyyy] and [mm/dd/yyyy].
5. The Cooperative is not registered for GST/HST purposes.
6. [Information about] The Cooperative’s interim income statement […].
7. [Information about] The Cooperative’s income statement […].
8. [Information about] The Cooperative’s income statement […].
9. [Information about] The Cooperative’s income statement […].
10. [Information about] The Cooperative’s interim income statement […].
11. The Cooperative supplied cannabis products only to individuals resident in Canada who are registered clients of the Cooperative and who have provided the Cooperative with their original medical document completed by a licensed health care practitioner 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.
12. During the operation of the Cooperative, the legal sale of dried marihuana and other cannabis products for medical purposes in Canada was governed by the (former) Marihuana for Medical Purposes Regulations, SOR/2013-119 (MMPR) from April 1, 2014 to August 23, 2016. However, on August 24, 2016, these regulations were replaced by the (former) Access to Cannabis for Medical Purposes Regulations SOR/2016-230 (ACMPR), which remained in effect until October 17, 2018.
13. All orders for cannabis products were either placed online through the Cooperative’s website or in person.
14. The Cooperative generates revenue from a number of cannabis products. The sale of these cannabis products are all made for amounts that exceed the direct cost of the products. The Cooperative was not collecting the GST/HST on these sales.
15. According to Part [#] of the Cooperative’s Memorandum of Association […] the directors must apply surplus funds arising from the operation of the Cooperative in a financial year as follows:
* […]
* […]
* Last, to patronage returns or dividends as recommended by the directors.
RULING REQUESTED
You would like to know:
1. Are the Cooperative’s supplies of cannabis products subject to GST/HST.
2. Is the Cooperative required to be registered for the GST/HST.
RULING GIVEN
Based on the facts set out above, we rule that:
1. The Cooperative’s sales of cannabis products are subject to the GST/HST.
2. The Cooperative is required to be registered for the GST/HST from the day that the Cooperative first made a taxable supply in Canada otherwise than as a small supplier.
EXPLANATION
Generally, most supplies of property or services made in Canada are subject to GST/HST at the applicable rate (depending on the place of supply), unless they are zero-rated supplies (taxed at the rate of 0%) or exempt supplies. Exempt supplies are listed in Schedule V to the Act while zero-rated supplies are listed in Schedule VI to the Act.
There are no exempting provisions that apply to the Cooperative’s supplies of cannabis products.
In addition, there are no 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 the (former) ACMPR.
Illegal sales of dried marihuana and other cannabis product
Sales of dried marihuana and other cannabis products made outside of the regulatory scheme provided by the (former) MMPR and ACMPR are also subject to the GST/HST (Footnote 1) . This would include sales made by local marihuana dispensaries, compassion clubs and other similar businesses.
Small supplier
Every person who makes a taxable supply in Canada in the course of a commercial activity engaged in by the person in Canada is required to register for GST/HST purposes except where the person is a small supplier.
In general, a person is a "small supplier" during any particular calendar quarter and the following month if the total value of the consideration for world-wide taxable supplies (other than supplies of financial services, sales of capital property, and goodwill attributable to the sale of a business) made by the person, or an associate of the person at the beginning of the particular calendar quarter, that became due, or was paid without becoming due, in the previous four calendar quarters does not exceed $30,000.
In the case of a person who is required to be registered for GST/HST purposes, the person is considered a "registrant" under the ETA whether or not the person actually registers. Therefore, in the case of mandatory registration, the person's effective date of registration will correspond to the date from which the person became a "registrant" under the ETA. The person's effective date of registration will be the day that the person first makes a taxable supply in Canada otherwise than as a small supplier. As a registrant at that time, the person is subject to the requirements and entitlements under the ETA.
The preceding information is provided in more detail in Guide RC4022, General Information for GST/HST Registrants.
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 rulings given in this letter provided that: none of the issues discussed in the rulings 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. 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, [...]. 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,
Lucas Ghosn, CPA
Charities, Non-Profit Organizations and Educational Sectors Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate
FOOTNOTES
1 Confirmed in the Federal Court of Appeal decision Gerry Hedges v. The Queen 2016 FCA 19.
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