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: 203573
Dear [Client]:
Subject: GST/HST RULING
Application of GST/HST to supplies of bulk cannabis
Thank you for your fax of October 10, 2019 concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to supplies of bulk cannabis made by […] (the “Corporation”) to federally licensed producers. We apologize for the delay in our response.
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 the following:
1. The Corporation is […] licensed by Health Canada to produce cannabis. The Corporation is registered for the GST/HST.
2. The Corporation received its cultivation licence in [mm/yyyy], and has since received licences for sale (medical), processing and cultivation. The Corporation is authorized to sell cannabis plants and seeds to provincially and territorially authorized distributors and retailers, as well as to individuals who have registered to obtain cannabis products for medical purposes (“registered patients”).
3. […][Information about the Corporation].
4. […].
5. 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.”
6. 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 phytocannabinoids produced by, or found in, such a plant, regardless of how the substance was obtained;
7. Schedule 2 to the Cannabis Act lists the following:
1. A non-viable seed of a cannabis plant;
2. A mature stalk, without any leaf, flower, seed or branch, of such 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.
8. 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.”
9. Subsection 1(2) of the Industrial Hemp Regulations (SOR2018-145) 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.” The Corporation is not subject to the Industrial Hemp Regulations as they do not produce cannabis plants or any part thereof in which the concentration of THC is 0.3% w/w or less in the flowering heads and leaves.
10. Sections 26 and 27 of the Cannabis Regulations set out the authorized activities of federally licensed producers of cannabis for medical purposes:
Licence for Sale for Medical Purposes
Authorized activities
26 Subject to the other provisions of these Regulations, a holder of a licence for sale for medical purposes is authorized to conduct those of the following activities that are authorized by the licence:
(a) to possess cannabis products; and
(b) to sell cannabis products
Sale – other than clients
27(1) Subject to subsection (2), a holder of a licence for sale for medical purposes that authorizes the sale of cannabis products is authorized to sell or distribute
(a) cannabis products to any of the following:
(i) a holder of a licence, other than a licence for cultivation,
(ii) the Minister, or
(iii) a person to which an exemption has been granted under section 140 of the Act in relation to the cannabis or class of cannabis that is, or is contained in, a cannabis product that is sold or distributed;
(b) dried cannabis, fresh cannabis, cannabis plants and cannabis plant seeds, that are cannabis products, to a holder of a licence for micro-cultivation or standard cultivation;
(c) cannabis plants and cannabis plant seeds, that are cannabis products, to a holder of a licence for a nursery; and
(d) cannabis products, other than cannabis plants and cannabis plant seeds, to a hospital employee if the employee’s possession of the cannabis product is for the purpose of, and in connection with, their duties.
RULING REQUESTED
You would like to know:
1. Would the direct sale from the Corporation to another licensed cannabis producer of bulk cannabis in fresh or dried form be a zero-rated supply?
2. Would the direct sale from the Corporation to another licensed cannabis producer of bulk cannabis for medical purposes be a zero rated supply?
RULING GIVEN
Based on the facts set out above and the explanation provided below, we rule as follows:
1. The direct sale from the Corporation to another licensed cannabis producer of bulk cannabis in fresh cut or dried form is not zero-rated under any provision of Schedule VI to the ETA and is therefore subject to GST/HST at the applicable rate.
2. The direct sale from the Corporation to another licensed cannabis producer of bulk cannabis for medical purposes is not zero-rated under any provision of Schedule VI to the ETA and is therefore subject to GST/HST at the applicable rate.
EXPLANATION
Generally, all supplies of property and services made in Canada are taxable unless an exemption from the GST/HST applies. Taxable supplies are supplies made in the course of a commercial activity and may be taxable at the rate of 0% (zero-rated supplies), 5%, 13%, or 15% on the value of the consideration for the supply depending on the province in which the supply is made. Exempt supplies are not subject to the GST/HST and are included in Schedule V. Zero-rated supplies are included in Schedule VI.
Specific supplies of agricultural and fishing products identified in Part IV of Schedule VI are zero-rated. There is no provision in Part IV which specifically zero-rates the sale of fresh cut or dried bulk cannabis.
Part I of Schedule VI contains provisions that zero-rate a broad range of drugs and substances that are regulated under federal legislation. 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 or the Food and Drugs Regulations, 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 cannot be sold to a consumer without a prescription, the supplies are zero-rated throughout the distribution chain.
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 and substances that are duplicates of such phytocannabinoids are cannabinoids that occur naturally in the cannabis plant and include tetrahydrocannabinol (THC) and cannabidiol (CBD). At the same time that phytocannabinoids were added to the Prescription Drug List, the Cannabis Exemption (Food and Drugs Act) Regulations were enacted, which 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 manufactured and sold in accordance with the Cannabis Regulations 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 in 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.
There is no provision in Part I of Schedule VI that distinguishes between cannabis for medical and non-medical purposes. It is our understanding that 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. As such, cannabis that is in one of the classes in Schedule 4 to the Cannabis Act, which lists the classes of cannabis that an authorized person may sell, can be sold as either non-medical cannabis or cannabis for medical purposes.
Therefore, when the Corporation provides bulk cannabis to another licensed producer, whether the cannabis will be ultimately sold as cannabis for medical or non-medical purposes, such a supply is not zero-rated by any provision of Schedule VI to the ETA, and is therefore taxable at the applicable rate depending on the province in which the supply is made.
[…]
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 ruling(s) given in this letter provided that: none of the issues discussed in the ruling(s) 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, please call me directly at 343-573-6088. 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,
Kate Portner Gartke
Health Care Sectors Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate
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