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: 85927
August 14, 2012
[Dear Client]
Subject: GST/HST RULING
[…] [Supply of Breast Implants]
This is further to the letter of [mm/dd/yyyy] […] and subsequent telephone conversations concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to supplies of silicone and saline filled breast implants. We apologize for the delay in responding.
HST applies at the rate of 15% in Nova Scotia, 13% in Ontario, New Brunswick, and Newfoundland and Labrador, and 12% in British Columbia. GST applies at the rate of 5% in the remaining provinces and territories.
All legislative references are to the Excise Tax Act (the ETA) and the regulations thereunder, unless otherwise specified.
STATEMENT OF FACTS
On the basis of the letter and attachments and the information available on the Corporation’s Web site at […], our understanding of the facts is as follows:
1. […] (the Corporation) operates a private, […] surgical facility (the Facility) located in [Province A].
2. The Corporation acquires the breast implants for consumption, use or supply in the course of its activities undertaken at the Facility in connection with both reconstructive and cosmetic breast implant surgery performed by physicians on patients of the Corporation.
3. […].
4. […].
5. The Facility has [#] surgeons and […].
6. The Corporation offers access to a wide range of day care surgeries at the Facility. […]
7. The Corporation describes on its Website […]
8. On its Web site, […]
9. Breast surgery performed by physicians at the Facility includes breast augmentation, reduction and reconstruction procedures. […]
10. […]
11. […]
12. […]
13. The breast implants in question are silicone shells that are filled with liquid solutions of saline or silicone. […]
14. The breast implants are designed to be surgically implanted for one of three purposes:
(a) To take the place of breast tissue that has been:
(i) removed surgically, such as during a mastectomy procedure;
(ii) damaged or destroyed by illness or accident; or
(iii) diminished as a result of breast-feeding infants.
(b) To correct co[n]genital asymmetry.
(c) To add volume to breasts for cosmetic purposes.
15. The following charges are made for the surgeries that are performed for cosmetic purposes:
(a) The surgeon charges the patient a professional fee for his or her surgical services.
(b) The Corporation charges the patient a facility fee for the use of the Facility.
(c) The Corporation charges the patient for the breast implants.
RULING REQUESTED
You would like to know whether the following supplies are zero-rated pursuant to section 25 of Part II of Schedule VI:
* When the Corporation makes a supply of breast implants to the patient where this is a separate supply from the surgical services supplied by the physician to the patient. The breast implants may be consumed, used or supplied by the Corporation in respect of a supply of reconstruction surgery or a supply of cosmetic surgery.
* When the Corporation acquires breast implants from its supplier.
RULING GIVEN
Based on the facts set out above, we rule that:
* When the supply of breast implants made by the Corporation to a patient of the Facility is for medical or reconstructive purposes or is in respect of another supply (the surgical service supplied by a physician) that is for medical or reconstructive purposes, the supply is exempt pursuant to section 2 of Part II of Schedule V.
* When the supply of the breast implants made by the Corporation to a patient of the Facility is for cosmetic purposes or is in respect of another supply (the surgical service supplied by a physician) that is for cosmetic purposes, the supply is taxable and the consideration for the supply is subject to the HST at the rate of […]%, as the supply is made in [Province A], pursuant to sections 1.1 and 2 of Part II of Schedule V, and section 1.2 of Part II of Schedule VI.
* When the Corporation acquires the breast implants for general inventory purposes from a supplier such as a manufacturer or distributor, this supply made to the Corporation is zero-rated pursuant to section 25 of Part II 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 GST/HST is a transaction-based tax. The general rule in section 165 is that every recipient of a taxable supply, other than a zero-rated supply, made in Canada shall pay tax calculated at the rate of 5%, 12%, 13%, or 15% (depending on the place of supply) on the value of the consideration for the supply. 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. An exempt supply is a supply that is not subject to GST/HST and that is included in Schedule V.
Please note that the GST/HST applies equally to imported goods as well as to goods supplied in Canada. Section 212 requires every person who is liable under the Customs Act to pay duty on imported goods, or who would be so liable if the goods were subject to duty, to pay GST on the goods calculated at the rate of 5% on the value of the goods. Section 212.1 imposes the provincial component of the HST in respect of non-commercial importations by residents of the participating provinces. This tax applies in addition to the tax imposed under section 212. If the supply of a medical device is included in Part II of Schedule VI that device may be imported on a non-taxable basis pursuant to section 6 of Schedule VII.
Medical or surgical prosthesis
On the basis of the letter and our additional research, we understand that a breast implant may be used for several purposes: as a substitute for natural tissue that is missing due to disease or surgery; to correct a malformation or a physical deformity; and for purely aesthetic purposes such as breast augmentation or a breast lift. Notwithstanding the multiple uses of breast implants, the CRA generally considers breast implants to be a medical or surgical prosthesis.
Part II of Schedule V and Part II of Schedule VI contain references to a medical or surgical prosthesis:
* Paragraph (b) of the definition of “institutional health care service” in section 1 of Part II of Schedule V, which identifies goods and services that may be exempt supplies pursuant to section 2 of that Part;
* Section 25 of Part II of Schedule VI, which identifies a medical or surgical prosthesis that may be a zero-rated supply for purposes of the GST/HST.
Accordingly, depending on the circumstances in which it is made, a supply of a medical or surgical prosthesis may be subject to the GST/HST, zero-rated or exempt. Part II of Schedule V and Part II of Schedule VI set out the circumstances in which a supply of a medical or surgical prosthesis is exempt or zero-rated; otherwise, the supply falls under the general rule and the GST/HST is calculated at the rate of 5%, 12%, 13%, or 15% (depending on the place of supply) on the value of the consideration for the supply.
Part II of Schedule V
Pursuant to section 2 of Part II of Schedule V, a supply made by the operator of a health care facility of an institutional health care service rendered to a patient or resident of the facility is exempt. An institutional health care service is an exempt supply when it is provided for medical or reconstructive purposes, and not for cosmetic purposes.
Cosmetic procedures are surgical and non-surgical procedures that are generally aimed at enhancing one’s appearance, such as liposuction, hair replacement procedures, botulinum toxin injections, teeth whitening, as well as face lifts, breast lifts and breast augmentation surgery that are not provided for the purpose of treating a medical condition or for reconstructive purposes. For instance, breast implants used to replace diminished breast tissue as a result of breast-feeding, to correct asymmetry, or to simply add volume to breasts would generally be considered to be provided for cosmetic purposes and not for medical or reconstructive purposes.
However, breast implants used to replace breast tissue that has been removed surgically, such as during a mastectomy procedure, or damaged or destroyed by illness or accident would generally be considered for medical or reconstructive purposes.
Definition of “health care facility”
Section 1 of Part II of Schedule V defines the phrase “health care facility” for purposes of that Part. Under paragraph (a) of this definition, a facility, or a part thereof, operated for the purpose of providing medical or hospital care, including acute, rehabilitative or chronic care is a health care facility. The CRA interprets this part of the definition to mean a facility attended by patients for the purpose of receiving care rendered by trained medical professionals who provide patients with what is required to diagnose, treat and/or prevent disease, injuries or other illnesses. Private surgical facilities with operating rooms, anaesthetic facilities and necessary equipment and supplies for surgeons to perform surgery on patients are health care facilities for purposes of Part II of Schedule V. A health care facility also includes cosmetic surgical facilities. A health care facility may have in-patient beds or it may be operated to provide ambulatory care or day surgery.
The Corporation operates the Facility […]. Based on these facts, it is our view that the Facility is operated by the Corporation for the purpose of providing medical care and thus falls within the meaning of “health care facility” for purposes of Part II of Schedule V.
Definition of “institutional health care service”
Section 1 of Part II of Schedule V defines the phrase “institutional health care service” for purposes of that Part as including any of the following when provided in a health care facility:
(a) laboratory, radiological or other diagnostic services;
(b) drugs, biologicals or related preparations when administered, or a medical or surgical prosthesis when installed, in the facility in conjunction with the supply of a service included in any of paragraphs (a) and (c) to (g);
(c) the use of operating rooms, case rooms or anaesthetic facilities, including necessary equipment or supplies;
(d) medical or surgical equipment or supplies
(i) used by the operator of the facility in providing a service included in any of paragraphs (a) to (c) and (e) to (g), or
(ii) supplied to a patient or resident of the facility otherwise than by way of sale;
(e) the use of radiotherapy, physiotherapy or occupational therapy facilities;
(f) accommodation;
(g) meals (other than meals served in a restaurant, cafeteria or similar eating establishment); and
(h) services rendered by persons who receive remuneration therefor from the operator of the facility.
Within the Facility, the use of operating rooms and/or anaesthetic facilities, necessary equipment and supplies for surgeons to perform surgery on patients, and medical or surgical prosthesis (breast implants) are provided to patients of the Facility. The medical or surgical prosthesis is installed in the Facility in conjunction with the use of an operating room, anaesthetic facilities and necessary equipment and supplies. Because they are provided in a health care facility, the use of the Facility for which the Corporation charges a “facility fee” to the patient and the breast implants that are surgically implanted in patients of the facility fall within the meaning of “institutional health care service”.
The characterization of an institutional health care service is discussed in GST/HST Policy Statement P-207, The GST Status of the Supply of a Laser Eye Surgery Service. As explained in P-207, the provision to a patient of the use of any part of the health care facility, such as an operating room, anaesthetic facility or accommodation is an institutional health care service.
The same treatment for purposes of Part II of Schedule V applies to any other supply made by the operator of a health care facility such as drugs when administered, or a medical or surgical prosthesis when installed, in the health care facility. In this situation, the drugs are administered or the surgical prosthesis is installed in the facility in conjunction with the use of an operating room and the provision of health care services.
Whether the institutional health care services rendered to patients of the Facility are exempt or taxable (the consideration is subject to the GST/HST) depends on whether the supply is made for medical or reconstructive purposes or for cosmetic purposes, or whether the supply relates to another supply that is made for medical or reconstructive purposes or for cosmetic purposes.
Supplies made before March 4, 2010
Prior to March 4, 2010, section 2 of Part II of Schedule V provided an exemption for a supply made by the operator of a health care facility of an institutional health care service rendered to a patient of the facility except where the supply related to the provision of a surgical or dental service that was performed for cosmetic purposes and not for medical or reconstructive purposes. Accordingly, the tax status of the institutional health care services (i.e., the use of the Facility and the breast implants) supplied by the Corporation were:
* exempt pursuant to section 2 of Part II of Schedule V where these services related to a surgical service that was performed for medical or reconstructive purposes; and
* taxable (the consideration for the supply was subject to the GST/HST) where these services related to a surgical service that was performed for cosmetic purposes as they were specifically excluded from section 2 of Part II of Schedule V.
Whether the supply made by the Corporation was exempt or whether the consideration for the supply was subject to the GST/HST, and whether the Corporation charged separate fees for the use of the Facility and the breast implants, the breast implants supplied by the Corporation were not a separate supply of property because of the circumstances in which the breast implants were supplied. That is, the breast implants were “installed” in the Corporation’s Facility in conjunction with the use of the Facility and therefore constituted an institutional health care service for purposes of the GST/HST.
Supplies made on or after March 4, 2010
Amendments made to Part II of Schedule V announced by the Minister of Finance on March 4, 2010 clarified that both surgical and non-surgical services performed for cosmetic purposes and not for medical or reconstructive purposes, as well as any separate supply of property and services made in respect of these ‘purely’ cosmetic services are not exempt supplies.i The definition “cosmetic service supply” was added to section 1 of Part II of Schedule V and it means a supply of a property or a service that is made for cosmetic purposes and not for medical or reconstructive purposes.
Section 1.1 of Part II of Schedule V clarifies that cosmetic service supplies and any separate supply of property or services that are in respect of cosmetic service supplies are not exempt under this Part. Accordingly, a supply of an institutional health care service, such as a medical or surgical prosthesis installed in a health care facility, is not an exempt supply included in Part II of Schedule V if it is a cosmetic service supply or it is made in connection with a cosmetic service supply.
The result of these amendments is that any supply (no matter how provided) that is made by the operator of a health care facility or made by a health care professional (e.g., a physician) of a cosmetic service supply or any separate supply of property or services that is made in respect of a cosmetic service supply is taxable: the consideration for the supply is subject to the GST at the rate of 5% or the HST at the rate of 12%, 13% or 15%, depending on the place of supply. These amendments apply to a supply made after March 4, 2010. They also apply to a supply made on or before that day if:
* all of the consideration for the supply becomes due after that day or is paid after that day without having become due; or
* any of the consideration for the supply became due, or was paid, on or before that day if the supplier charged, collected or remitted any GST/HST in respect of the supply.
These amendments were clarifying measures intended to address non-surgical cosmetic services, and supplies in respect of non-surgical cosmetic services. Therefore, these amendments have no impact on the tax consequences of institutional health care services supplied by the operator of a health care facility that related to surgical procedures, whether provided for medical or reconstructive purposes or for cosmetic purposes, prior to March 4, 2010.
In summary, the tax status of supplies of institutional health care services made by the Corporation on or after March 4, 2010 is as follows:
* the use of the Facility and the breast implants installed in a patient at the Facility are exempt institutional health care services pursuant to section 2 of Part II of Schedule V when they are provided for medical or reconstructive purposes or provided in respect of another supply (e.g., a physician’s surgical service) that is made for medical or reconstructive purposes; and
* the use of the Facility and the breast implants installed in a patient at the Facility are taxable supplies pursuant to sections 1.1 and 2 of Part II of Schedule V when they are provided for cosmetic purposes or provided in respect of another supply (e.g., a physician’s surgical service) that is made for cosmetic purposes and not for medical or reconstructive purposes. In this situation, taxable does not include zero-rated supplies.
Part II of Schedule VI
Pursuant to section 25 of Part II of Schedule VI, a supply of a medical or surgical prosthesis, an ileostomy, colostomy or urinary appliance or similar article that is designed to be worn by an individual is zero-rated. This section is subject to the condition set out in section 1.1 of Part II of Schedule VI, which excludes from that Part any property that is not designed for human use or for assisting an individual with a disability or impairment.
The announcement by the Minister of Finance on March 4, 2010 also included an amendment to Part II of Schedule VI. Pursuant to section 1.2 of Part II of Schedule VI, a cosmetic service supply (as defined in section 1 of Part II of Schedule V) and any supply in respect of a cosmetic service supply is excluded from the provisions of that Part.ii This amendment applies to a supply made after March 4, 2010. It also applies to a supply made on or before that day if:
* all of the consideration for the supply becomes due after that day or is paid after that day without having become due; or
* any of the consideration for the supply became due, or was paid, on or before that day if the supplier charged, collected or remitted any GST/HST in respect of the supply.
Section 25 of Part II of Schedule VI generally applies to a supplier that is a manufacturer, distributor or retailer as such suppliers do not consume, use or supply medical or surgical prosthesis in the course of providing health care services. The supplies made by manufacturers, distributors and retailers are not connected to a particular service that will be rendered to an individual. In these circumstances the recipient typically acquires the medical or surgical prosthesis for general inventory purposes and it is not known whether that prosthesis will be used in a reconstructive or a cosmetic surgical procedure.
It was also asked whether the breast implants supplied by the Corporation could be considered a zero-rated supply described in section 25 of Part II of Schedule VI where a separate consideration was charged. Based on the structure of the ETA and the definition of the expression “commercial activity” in subsection 123(1), it is necessary to determine whether the supply of the medical or surgical prosthesis is exempt under Schedule V prior to determining whether the supply is zero-rated under Schedule VI.
Generally, the manner in which consideration is charged does not by itself characterize a supply. Instead, the tax consequences of a supply are determined by the circumstances in which the supply is made. As noted in the discussion above concerning Part II of Schedule V, a medical or surgical prosthesis is, by definition, an “institutional health care service” when the prosthesis is installed in a health care facility in conjunction with the supply of a service.
Where the operator of a health care facility provides a medical or surgical prosthesis for medical or reconstructive services and the prosthesis is installed in conjunction with the supply of a service in the health care facility, the supply is an exempt institutional health care service pursuant to section 2 of Part II of Schedule V. Accordingly, section 25 of Part II of Schedule VI could not apply to a supply that is made in such circumstances. Because of the definition of “commercial activity” this exempt supply cannot be a zero-rated supply. In order to be a taxable supply, which would include a zero-rated supply, the supply must be made in the course of a commercial activity and the definition of commercial activity excludes exempt supplies.
The operator of a health care facility generally acquires medical or surgical prosthesis for consumption, use or supply in the course of providing institutional health care services that are rendered to patients of its health care facility. It is at this stage when it can be determined whether the medical or surgical prosthesis is a cosmetic service supply or supplied in respect of a cosmetic service supply. Thus section 1.2 of Part II of Schedule VI will exclude the supply made by the operator from section 25 of that Part where the supply is in respect of a cosmetic service supply.
Conclusion
As explained above, depending on the circumstances in which it is made, a supply of a medical or surgical prosthesis may be subject to the GST/HST, zero-rated or exempt:
* When the supply is made by the operator of a health care facility, the medical or surgical prosthesis will be either an exempt supply or a taxable supply that is subject to the GST at the rate of 5% or the HST at the rate of 12%, 13% or 15% (depending on the place of supply).
* In contrast, when the supplier is a manufacturer or distributor there is usually a discrete supply of property that has no connection to a particular surgical procedure, e.g., the recipient acquires the medical or surgical prosthesis for general inventory purposes. Therefore, supplies of a medical or surgical prosthesis made by a manufacturer or distributor to the operator of a health care facility would generally be zero-rated where the prosthesis is designed for assisting an individual with a disability or impairment. However, if the medical or surgical prosthesis is, by its design, to be used solely for cosmetic purposes then the supply may be considered a cosmetic service supply or a supply in respect of a cosmetic service supply and would be taxable and not zero-rated.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-952-6761.
Yours truly,
Susan Eastman
Municipalities and Health Care Services Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate
Endnotes:
i These amendments were included in Bill C-9, the Jobs and Economic Growth Act, which received Royal Assent on July 12, 2010.
ii This amendment was included in Bill C-9, the Jobs and Economic Growth Act, which received Royal Assent on July 12, 2010.
Email this Content