2 May 2006 GST/HST Ruling 77423 - Supply of Computer Data Files by a Charity

Please note that the following document, although correct at the time of issue, may not represent the current position of the Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence.

Dear XXXXX:

This is in reply to the facsimile transmission XXXXX by the XXXXX concerning the application of the Goods and Services Tax/Harmonized Sales Tax ("GST/HST") to the XXXXX Cochlear Implant System. We have addressed our reply to you at the request of XXXXX, which has granted you third party authorization to represent them in this matter.

XXXXX has asked the XXXXX Rulings Centre XXXXX to reconsider the ruling given in its XXXXX. Our office advised XXXXX on technical aspects of that letter, and XXXXX has forwarded XXXXX letter to us for a direct response.

All legislative references are to the Excise Tax Act (the "ETA").

Statement of Facts

We have reviewed the additional facts and analysis presented by XXXXX in its XXXXX letter. Our understanding of the facts and the transaction is as follows.

XXXXX corporation that develops and manufactures the XXXXX Cochlear Implant System.

We understand that a cochlear implant system consists of battery powered internal and external components. The external components, which are worn on the head, over or next to the ear, include:

•   a microphone, which picks up sound from the environment and converts that sound into an electrical signal;

•   a speech processor, which selects and arranges the signals into a special code; and

•   a transmitter, which sends the coded electrical signal to the internal components of the cochlear implant system.

The internal components are surgically implanted into the skull behind the ear and tiny wires are inserted into the cochlea. The internal components include:

•   a receiver, which decodes the signal from the speech processor; and

•   an electrode array, which stimulates the cochlea with electrical current.

We understand that the cochlear implant system compensates for damaged or non-working parts of the inner ear by electronically finding useful sounds, bypassing damaged inner ear structures and sending electrical signals directly to the auditory nerve. The electrical signals are transmitted to the brain and interpreted as sound. Speech-language pathologists and audiologists are frequently involved in helping system recipients to interpret the sounds created by a cochlear implant.

We understand the following facts in regards to the subject system, as listed in the Statement of Facts in case number XXXXX.

The XXXXX Cochlear Implant System is intended to enable severe to profoundly hearing-impaired individuals to detect and recognize auditory information through electrical stimulation of the auditory nerve.

The XXXXX Cochlear Implant System is surgically implanted behind the ear, under the skin, in a trough in the skull. The body of the implant contains a computer chip and a magnet. Coming off the body of the implant is a soft silicone tapered strand with several electrodes imbedded inside of it. This is called the "electrode array".

The electrode array is then inserted into the cochlea (inner ear) through a small hole drilled in the cochlea. Approximately six weeks after the insertion of the implant, the patient is fitted with the processor. The processor has a microphone and additional computer chips. A cable attaches to the processor and on the other end to a small disk-shaped component that also has a magnet in it. This is referred to as a "coil". The coil then attaches, by magnetic attraction, to the patient's head just over the spot where the implant lays.

The microphone on the processor picks up sound, processes those acoustical signals into electronic signals using a sophisticated software strategy called XXXXX, then sends those electronic signals down the cable, through the coil to the implant, and down the electrode array into the cochlea. Those signals then stimulate the auditory nerve and the brain "hears" the sound.

The implant is of no use without the processor, and vice versa. In addition, there are many additional smaller parts and accessories that are used with the systems: battery packs, ear hooks, and different length cables. All of these parts are custom made to work with the XXXXX Cochlear Implant System and have no alternative uses. The software is also a critical component of the system and is specially developed for use only with this particular product.

XXXXX.

Ruling Requested

XXXXX has asked us to confirm the tax status of the XXXXX Cochlear Implant System for purposes of the GST/HST.

Rulings Given

Based on the facts set out above, we rule that the supply of the XXXXX Cochlear Implant System is zero-rated pursuant to section 2 of Part II of Schedule VI to the ETA.

Based on the facts set out above, we rule that importations of the XXXXX Cochlear Implant System do not attract GST/HST.

Explanation

Supplies of medical and assistive devices that are described in Part II of Schedule VI are zero-rated supplies, meaning that they are taxable at a rate of 0% for purposes of the GST/HST.

Section 2 of Part II of Schedule VI zero-rates "a supply of a communication device, other than a device described in section 7 ^[xxiii]1, that is specially designed for use by an individual with a hearing, speech or vision impairment". Based on the information provided, the XXXXX Cochlear Implant System qualifies as a communication device for purposes of the aforementioned section.

Goods the supply of which is included in Part II of Schedule VI are not subject to the GST/HST upon importation, by virtue of section 6 of Schedule VII to the ETA.

These rulings are subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST/HST Memoranda Series. We are bound by these rulings provided that none of the issues is currently under audit, objection, or appeal; that there are no relevant changes in the future to the ETA, or to our interpretative policy; and that XXXXX has fully described all necessary facts and transactions for which it requested a ruling.

Should you have any further questions or require clarification on this matter, please do not hesitate to contact me at 613-954-4280. Collect calls are accepted.

Yours truly,

(Mrs.) S.C. Cahill
Municipalities and Health Care Services Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate

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