Copyright 1992 XXXXX the Excise Tax Act (ETA).
Statement of facts:
The following situations are outlined, by way of example:
Example 1:
A retailer of footwear purchases from a manufacturer, standard or regular footwear with easily removable inner soles. To satisfy the needs of his client, the retailer modifies the footwear by replacing the removable inner sole with a flat one which will allow a subsequent insertion of an orthotic device (i.e. arch support) which the client purchased elsewhere.
Example 2:
This same retailer sells to a client standard or regular footwear which he has slightly modified in the interior by adding small padding to offset the abnormality of a client's foot.
Issue:
1) What guidelines should be used in determining whether the supply of footwear is zero-rated pursuant to paragraph 2(c) of the Medical Devices (GST) Regulations (i.e. the Regulations) or taxable at the rate of 7% pursuant to subsection 165(1) of the ETA?
2) Does a prescription from a medical practitioner suffice to indicate that footwear is zero-rated pursuant to paragraph 2(c) of the Regulations?
Reply:
Paragraph 2(c) of the Medical Devices (GST) Regulations zero-rates the supply of the following:
"footwear that is specially designed for an individual who has a crippled or deformed foot or other similar disability;"
In general terms, this provision is to zero-rate orthopedic footwear that is "specially designed for an individual" for defects of the feet or structural defects characterized by the form or positions which are not normal. The wording "specially designed for an individual" emphasizes the "custom nature" of the footwear required to satisfy this provision.
It is clear that orthopedic footwear which is custom made, manufactured from scratch or custom moulded from standard components for an individual is zero-rated for GST purposes; however, in many instances, because of the various disabilities, certain off-the-shelf types of footwear may be adapted or modified to accommodate the special needs of an individual and the tax treatment of these supplies is less clear.
Off-the-shelf footwear:
In determining whether off-the-shelf footwear is "specially designed for an individual", the extent to which the footwear is modified, must be examined. The following may assist in determining the proper tax treatment of footwear.
1) Are the modifications to the footwear substantive, such that the footwear cannot be easily returned to its original condition?
2) Can the footwear, once modified, be worn by an individual who does not have a crippled or deformed foot or other similar disability?
3) Is the modification to the footwear by request of a medical practitioners' prescription?
For example, the fact that some shoes are named or promoted as "orthopedic shoes" does not necessarily mean that they are all designed for foot deformities or that they qualify under the Regulations. Some shoes are only named "orthopedic shoes" as a marketing tool. These shoes may have minor structural features that attract the attention of certain consumers who feel that the specific features may help them with minor physical problems that are not medically viewed to be a disability. Examples of this type of footwear would be commercially available walking shoes and athletic shoes which provide adequate support and can easily accommodate devices. In this instance, the footwear would be considered taxable at a rate of 7% as footwear suitable for the use of the general public and not for crippled, deformed feet or other similar disabilities.
Notwithstanding the above, there are certain specialty types of off-the-shelf footwear which have special features built-in so that they are only designed to accommodate people with specific deformities. Some may be more rigid, have extra depth or are curved differently so that they can accommodate different deformities. This type of footwear would be zero-rated as this footwear would not be worn by the general public or those without foot disabilities.
Similarly, custom made additions to existing off-the-shelf footwear or standard footwear such as heel or sole elevation, sole widening, interior excavation, forefoot realignment, interior/exterior wedging, metatarsal pad/bar or a brace attachment are all modifications substantive enough such that the footwear cannot be easily returned to its original condition nor can the shoe be worn by those without foot deformities, and would most likely be further supported by a medical prescription. This type of modified footwear would be zero-rated.
The two examples presented in this letter suggest modifications that are not substantive. The footwear can easily be returned to its original condition and would most likely be worn by the general public without foot deformities. As such the supply of footwear described do not qualify as zero-rated footwear pursuant to paragraph 2(c) of the Regulations and are subject to GST at a rate of 7%.
Although a medical prescription may serve to support a claim for modified footwear, a prescription does not, on its own merit, suffice for zero-rating pursuant to the Regulations. The wording of this provision makes no reference to medical prescriptions.
Please note that this interpretation is based on current legislation and that a Notice of Ways and Means Motion to amend the ETA was tabled in the House of Commons on April 23, 1996. It contains a proposal to amend Part II of Schedule VI to the ETA by adding a new provision which will replace paragraph 2(c) of the
Regulations with new section 24.1, as follows:
"A supply of footwear that is specially designed for use by an individual who has a crippled or deformed foot or other similar disability, when the footwear is supplied on the written order of a medical practitioner."
If passed, this amendment will apply to supplies for which all the consideration becomes due or is paid without becoming due on or after 1996.
The foregoing comments represent our general views with respect to the subject matter of your query. Unannounced proposed or future amendments to the legislation may result in changes to our interpretation. These comments are not rulings and, in accordance with the guidelines set out in Section 1.4 of the GST Memoranda Series, do not bind the Department with respect to a particular situation.
If you require additional information or wish to discuss this further, please contact Michèle Brûlé, Policy Officer, at (613) 952-9208.
Yours truly,
J.A. Venne
Director
Special Sectors
GST Rulings and Interpretations
| c.c.: |
Enikö Vermes
Michèle Brûlé
Ken Syer |
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