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XXXXX Case: HQR0000018
Sch. VII 6; VIII 9 & 32
July 17, 1997
Thank you for your letter of August 28, 1996 (with attachments) in which you provided us with information concerning frames and lenses for prescription eyeglasses. We have recently reviewed our interpretation as to whether frames and partly finished lenses for prescription eyeglasses can be imported without application of the Goods and Services Tax (GST) or Harmonized Sales Tax (HST) as specially designed parts for a zero-rated medical device. The Department's previous interpretation was to the effect that frames and partly finished lenses or lens blanks could not be treated as specially designed parts.
We understand that lenses for prescription eyeglasses are mass produced by optical manufacturers in various standard combinations of curves and are completed at the factory to stages known as "semi-finished" and "uncut". The "semi-finished" stage is the lens blank ground and polished to a spherical or cylindrical curve on one surface. The "uncut" stage is that which follows the "semi-finished" stage and involves the grinding and polishing of the other surface of the lens to the required curve. These lenses are generally single vision. The lenses are distributed by the manufacturers either to their own prescription laboratories, which they operate throughout the country, to prescription laboratories operated by their associated companies, or to independent prescription laboratories.
Lenses in "uncut" or semi-finished" stages (lens blanks) already have some part of a corrective prescription in them, however, they are not yet ready for sale as they require further "finishing" to fill a consumer's prescription. Lens blanks have no use other than for finishing and incorporation into prescription eyeglasses. In particular, they are unsuitable for use as part of non-corrective eyewear such as safety glasses because vision correction properties are already present which would cause seeing problems if lenses constructed from them were used by persons not requiring vision correction.
The operations performed by prescription laboratories on orders received from optometrists consist of the cutting and grinding of the edges of "uncut" lenses to size and shape to fit the frames with which they will be used, also grinding and polishing of one surface to a "semi-finished" lens to suit a particular prescription, in addition to cutting and grinding of the edge and fitting these lenses into the frame.
Occasionally, in cases where a special prescription calls for degrees of curvatures not made in mass production methods by the manufacturers at the factory, both surfaces of a lens blank may be ground and polished and the lens cut and fitted into the frame.
Lens Blanks must be selected and processed based upon three variables
1) the correction required to be made to the patient's vision
2) the size and shape of frame selected and,
3) the individual patient's inter-pupilary distances.
Except in the case of certain very common vision problems, it is not economically feasible to produce frames with corrective lenses already installed at the time of selection by the consumer as the number of combinations required by the variables of different frame size and shape, vision correction required and individual inter-pupilary distance is simply too great.
Prescription eyeglass frames must therefore be designed to incorporate certain elements which facilitate the final processing and installation of appropriate corrective lenses after selection of frame style and size by the consumer. Non-prescription eyeglass frames need not incorporate such design features as they can be selected by the consumer with lenses already installed.
Design elements which must be incorporated include:
a: Frame markings as follows:
i) Frame size markings
ii) Temple length marking
iii) Frame manufacturer or vendor and,
b: A lens retention system which facilitates installation, removal and replacement of corrective lenses after selection of frame by a consumer.
On March 20, 1997 Royal Assent was given to Bill C-70 which amends the Excise Tax Act (ETA). The Bill includes changes to the GST/HST which were announced in April and August 1996. Included is an amendment to section 9 of Part II of Schedule VI which changes the provision for zero-rating of prescription eyeglasses to read as follows:
9. "A supply of eyeglasses or contact lenses when the eye glasses 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."
The amended section 9 will apply to supplies of prescription eyeglasses made after April 23, 1996.
Section 32 of Part II of Schedule VI to the ETA provides zero-rated status for parts, accessories or attachments which are specially designed for zero-rated medical devices referred to in Part II of Schedule VI. In order for a part to fall within the provisions of section 32, it must first be a part, and second be specially designed for a specific zero rated property referred to in Part II of Schedule VI.
In order for an item to fall within the provisions of section 32 as a specially designed part for prescription eyeglasses, it must first be a part and second be specially designed for use in prescription eyeglasses. We consider that all of the following elements must be applicable in order for an item to be considered to be a specially designed part:
1) The item is a part rather than a material.
2) The part is committed by design or nature for use as a part in zero-rated prescription eyeglasses.
3 ) The part is not reasonably expected to have an alternative use (unless the only alternative use is also as a specially designed part for another zero-rated medical device).
A part is an identifiable, integral, constituent component of a larger entity. A material lacks the essential character of an integral, constituent article. Where the identity of an article is not fixed with certainty it will be regarded as material and not as an unfinished part. An example of a material would be an epoxy or glue.
Items which must be further processed prior to taking on unique design characteristics (such as pieces of optical glass which do not have any element of a prescription already incorporated) are not specially designed parts until that processing has taken place. Partially finished parts which have been processed to the point where they incorporate unique design elements attributable to their exclusive use as parts for prescription eyeglasses are at that point parts for prescription eyeglasses.
We now consider that lenses for prescription eyeglasses in "uncut" or semi-finished" stages (lens blanks) which already have some part of a corrective prescription incorporated in them, and have no use other than for finishing and incorporation into prescription eyeglasses are zero-rated parts for prescription eyeglasses. We also consider that frames for prescription eyeglasses which incorporate the design elements noted above are zero-rated as parts for prescription eyeglasses. We will treat our change in interpretation as being effective January 1, 1991. A policy statement enunciating the interpretation provided in this letter is being prepared and will be available nationally. We will send a copy of the policy statement to your attention once it is available.
The foregoing comments represent our general views with respect to the application of GST/HST to parts for prescription eyeglasses. 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 GST Memoranda Series (1.4), do not bind the Department with respect to a particular situation.
Should you need any additional information, please do not hesitate to contact me at (613) 952-8531.
Yours truly,
Mark Sylvest, B.A. LL.B.
Rulings and Interpretations Officer
GST/HST Policy and Legislation
c.c.: A. Venne
E. Vermes
D. Gagnon
M. Sylvest
K. Syer