C.N.: 2915
May 2, 1996
Dear XXXXX
This letter has two purposes. The first purpose is to bring to your attention a recent review of the administration of the Excise Tax Act (ETA) which will affect the application of the Goods and Services Tax (GST) as it pertains to the supply of prescription eyewear. The second purpose of this letter is to highlight recent proposed amendments to the ETA which will result in further changes to the application of the GST to the supply of prescription eyewear.
Administrative Changes
Section 9 of Part II of Schedule VI to the ETA includes the following as GST zero-rated supply:
"A supply of eyeglasses or contact lenses when the eyeglasses or lenses are supplied for the treatment or correction of a defect of vision to a consumer on the written order of an eye-care professional who is entitled under the laws of the province in which the professional practises to prescribed eyeglasses or contact lenses for that purpose."
The Department has administered this provision as follows:
Where supplies are paid for by parties who are not consumers (such as insurance companies and welfare agencies, federal government departments) the zero-rating conditions have not been met. This resulted in supplies of prescription eyewear which were not paid for by a consumer being subject to the GST at 7%. This policy was effective January 1, 1993 when the French version of the ETA was amended to match the English version.
We have reviewed this treatment and would like to announce a change in administration of this provision. This change is in respect of supplies of prescription eyewear on or after January 1, 1993.
The supply of prescription eyewear is zero-rated for GST purposes where a consumer is the recipient of the supply. The term "recipient" is defined under section 123 of the ETA as, in part, "where consideration for the supply is payable under an agreement for the supply , the person who is liable under the agreement to pay that consideration". Where a consumer pays or is liable to pay for the supply of the eyewear, the supply will be considered to be zero-rated.
This means that
• Sales where a consumer is invoiced and pays the amount invoiced for the supply of prescription eyewear remain zero-rated.
• Sales of prescription eyewear where an insurance company reimburses a consumer are also zero-rated because the supply was made to the consumer.
• We have revised our position where a consumer "assigns" the right to an insurance benefit to the supplier. It is now our position that, in this circumstance, the "recipient" remains the consumer because the consumer remains the liable party. Therefore, in these circumstances, the supply is also zero-rated.
• This arrangement is unfortunately not available in situations where municipal welfare agencies have entered into contracts (exclusive or otherwise) with prescription eyewear suppliers. In these circumstances, where the recipient is a municipal welfare agency, the supply remains subject to the GST at 7%. Where other organizations have similar contracted arrangements with suppliers of prescription eyewear, the supply may also be taxable at 7%. Suppliers should contact their local Revenue Canada office to determine the application of the GST in these similar circumstances.
Supplies to Provinces
Also, of note is the fact that the Canadian provinces do not pay the GST. In some provinces certain long term welfare cases (e.g. for certain disabled persons) are administered by the provinces. Supplies of prescription eyewear made to these organizations do not attract the GST.
Recent Proposed Changes to the GST Treatment of Prescription Eyewear
On April 23, 1996, the federal government introduced a Notice of Ways and Means Motion to amend the relevant GST legislation. Included in the proposed amendments is one to amend section 9 of Part II of Schedule VI to the ETA. As discussed above, this provision includes the conditions for zero-rating the supply of prescription eyewear. The following is the proposed new version of this provision:
"A supply of eyeglasses or contact lenses when the eyeglasses or lenses are supplied on the written order of an eye-care professional for the treatment or correction of a defect of vision of a consumer named in the order where the eye-care professional is entitled under the laws of the province in which the professional practises to prescribe eyeglasses or contact lenses for such purpose."
This amendment is to come into force for supplies made after April 23, 1996. The effect of this proposed amendment is that the previous conditions under the provision which raised administrative difficulties, namely, the condition that the supply be made "to a consumer", has been removed. This means that effective April 24, 1996, supplies no longer have to be made to a consumer in order to be zero-rated.
To be zero-rated a supply will merely have to be prescribed for the correction of vision of a consumer. The consumer no longer has to be the recipient of the supply. The conditions formerly required for a supply of prescription eyewear to be zero-rated which were discussed in the first half of this letter, do not apply in respect of supplies made after April 23, 1996.
The proposed amendment will allow supplies of prescription eyewear to be zero-rated in cases where they were previously taxable at 7%. In situations where municipal welfare agencies enter into exclusive contracts with prescription eyewear suppliers, the supply is now zero-rated as well. This is because under the proposed amendment the only requirement which must be satisfied is that the supply be made under the prescription of a qualified eye-care professional for the correction of a defect of vision of a consumer.
This will also be the case where corporations purchase prescription safety glasses for employees. As per the Notice of Ways and Means Motion, supplies made under these conditions are also zero-rated after April 23, 1996.
This proposed amendment should end current difficulties in the administration of this provision. Please note that proposed legislation does not become law until it receives Royal Assent.
If you would like to discuss this matter further, please do not hesitate to contact Ken Syer, A/Senior Policy Officer, at (613) 952-9590.
Yours truly,
J.A. Venne
Director
Special Sectors
GST Rulings and Interpretations
Policy and Legislation Branch
Telephone #: (613) 954-8585
Fax #: (613) 990-1233
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