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, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
Case Number: 109536[r]
Business Number: [...]
June 30, 2011
Dear [Client]:
Subject:
GST/HST RULING
Tax Status of Various Medical Devices Supplied by [...]
This refers to your correspondence dated October 13, 2010 concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the supply of various medical devices manufactured by [...] ("[the Company]"). This is also in reference to your telephone conversation with Elaine Bonnah of this office and myself on October 13, 2010 in which you asked us to reconsider our previous ruling in our letter dated August 31, 2010 regarding [...] [Product 1], [Product 2], and [...] [Product 3 and Product 4] that are used with [...] [Product 5 and Product 6].
HST applies at the rate of 15% in Nova Scotia, 13% in New Brunswick, and Newfoundland and Labrador, and Ontario, 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 (ETA) unless otherwise specified.
Statement of Facts
We understand the following:
1. [The Company] manufactures a variety of medical devices [...].
2. [The Company] has obtained medical devices licences from Health Canada for a number of these devices.
3. [The Company] is located in [...] [Country X] and is a registrant for purposes of the GST/HST.
4. Ownership of the medical devices is transferred on delivery. As importer of record, [the Company] pays the GST/HST when the medical devices are imported into Canada.
5. [Product 3] are used to [...]
6. [Product 4] are used to [...]
7. [Product 1] is a product that is [...] [material composition and use of Product 1 described]
8. [Product 2] are made of [...] [material composition and use of Product 2 described]
9. [Product 1] and [Product 2] are made of the same material. The material is [...]. [material composition described]
10. The material [...] [material strength and longevity described]
Ruling Requested
You have asked us to reconsider our ruling made in our letter dated August 31, 2010 in respect of [Product 1], [Product 2], and [Product 3] and [Product 4].
Ruling Given
We have reviewed the treatment afforded the supplies of [Product 1], [Product 2], and the supply of [Product 3] and [Product 4] and provide the following rulings which confirm our previous rulings given in our letter dated August 31, 2010.
1. The supply of [Product 1] is subject to GST/HST at the rate of 5%, 12%, 13%, or 15% as applicable pursuant to section 165 in respect of supplies made in Canada and pursuant to section 212 on their importation as there is no provision in the ETA that would relieve these supplies of the GST/HST.
2. The supply of [Product 2] is subject to GST/HST at the rate of 5%, 12%, 13%, or 15% as applicable pursuant to section 165 in respect of supplies made in Canada and pursuant to section 212 on their importation as there is no provision in the ETA that would relieve these supplies of the GST/HST.
3. Supplies of [Product 3] and [Product 4] are subject to GST/HST at the rate of 5%, 12%, 13%, or 15% as applicable pursuant to section 165 in respect of supplies made in Canada and pursuant to section 212 on their importation as there is no provision in the ETA that would relieve these supplies of the GST/HST.
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
Generally all supplies of goods and services made in Canada are subject to the GST/HST unless specifically relieved under the ETA. There are exceptions for medical devices that are specifically identified in Part II of Schedule VI as being zero-rated; i.e., the tax applies at the rate of 0%. If a medical device is not included in Part II of Schedule VI, then the supply of the medical device remains subject to tax at the rate of 5%, 12%, 13%, or 15% as applicable.
Section 212 imposes the GST at a rate of 5% on goods imported into Canada. It provides that every person who is liable under the Customs Act to pay duty on such goods, or would be so liable if the goods were subject to duty, is liable to pay GST on the value of the goods.
Subsection 212.1(2) imposes the provincial component of the HST at a rate of 8% in respect of certain importations by residents of the provinces of New Brunswick, Newfoundland and Labrador, and Ontario. This subsection also imposes the provincial component of the HST at a rate of 10% in Nova Scotia and 7% in British Columbia. This tax applies in addition to the tax imposed under section 212. Generally, the tax imposed under section 212.1(2) will be collected by the Canada Border Services Agency ("CBSA") at the time of importation, unless pursuant to subsection 212.1(3), the goods in question are accounted for as "commercial goods" under section 32 of the Customs Act.
The CBSA administers the Customs Act and any inquiries regarding the interpretation and the administration of that Act should be directed to them. They can be reached at 1-800-461-9999.
Generally, all goods imported into Canada are taxable for GST/HST purposes unless specifically relieved under section 213. Importations of goods relieved of tax under section 213 are set out in Schedule VII.
Section 6 of Schedule VII provides for the non-taxable importation of goods the supply of which is included in any of Parts I to IV and VIII of Schedule VI, other than section 3.1 of Part IV of that Schedule.
[Product 3] and [Product 4]
Section 32 of Part II of Schedule VI zero-rates "A supply of a part, accessory or attachment that is specially designed for a property described in this Part." In other words, to be zero-rated under section 32 the item must be a part, accessory or attachment that is specially designed for a property that is zero-rated in Part II of Schedule VI.
[...] [Product 5] and [Product 6] [...] were ruled to be zero-rated in our previous ruling dated August 31, 2010.
Although [Product 4] are sized based on the area of the body where they are placed, there are no features which indicate that they are specially designed for [Product 6]. As such, [Product 4] would not be considered to be specially designed for [Product 6].
The information that was submitted in your correspondence of October 13, 2010 indicates that [Product 5] are designed [...] to allow for [...] with [Product 3]. The fact that [Product 5] are designed to allow for [...] does not indicate that [Product 3] themselves are specially designed for another property described in Part II of Schedule VI rather it indicates that the design of [Product 5] takes into account the shape of [Product 3] that are utilized with [Product 5].
The fact that a product can be used with medical devices does not mean that the product is a "specially designed" part, accessory or attachment for the medical device. The qualifier "specially" imposes a restriction on the word "designed" which excludes general-purpose products from the zero-rating provision. The specially designed article is not reasonably expected to have an alternate use. [Product 3] are also used with other [...] devices, devices which are not zero-rated, and would therefore be multipurpose goods and would not be considered to be specially designed for [Product 5].
We understand that in order to use [Product 5] and [Product 6] it is necessary to use [...] [Product 3 and Product 4] to affix [Product 5 and Product 6] to the patient.
[Product 5 and Product 6] would not perform their functions without being attached with [Product 3 and Product 4]. However, the GST/HST is a transactional tax and for each transaction, the supplier must determine whether the tax is applicable. Under a transactional tax system, the zero-rating provisions apply on a "supply-by-supply" basis. As [Product 3 and Product 4] and [Product 5 and Product 6] are supplied separately the tax status of those supplies are looked at independent of one another.
As [Product 3] and [Product 4] are not specially designed for a property described in Part II of Schedule VI they would be subject to GST/HST at the rate of 5%, 12%, 13%, or 15% as applicable pursuant to section 165 in respect of supplies made in Canada and pursuant to section 212 on their importation.
[Product 1] and [Product 2]
Section 25 of Part II of Schedule VI zero-rates "A supply of a medical or surgical prosthesis, or an ileostomy, colostomy or urinary appliance or similar article that is designed to be worn by an individual." The CRA considers a medical or surgical prosthesis to be an artificial device that replaces a missing part of the body, corrects a physical deformity or malfunction, or supports a weak or deformed part of the body. This artificial device could be an externally worn device or an implanted device that is worn internally.
We understand that [Product 1] and [Product 2] [...] [material strength and longevity described]
The concepts of replacing a body part or supporting a weak or deformed part of the body implies a notion of permanency which is not compatible with a device that is used temporarily during a surgical procedure or a device that provides support while healing from trauma or surgery. Although [Product 1] components and [Product 2] are not removed from the body they would not be considered to be prosthesis for the purposes of section 25. They support a part of the body, but only as a temporary measure [...].
As there is no provision in Part II of Schedule VI that applies to the supplies of [Product 1] and [Product 2] they are subject to GST/HST at the rate of 5%, 12%, 13%, or 15% as applicable pursuant to section 165 in respect of supplies made in Canada and pursuant to section 212 on their importation.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-954-4395. 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,
Arthur Blommesteijn
Municipalities and Healthcare Services Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate
UNCLASSIFIED
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