13 March 1998 GST/HST Interpretation HQR0001093 - Application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the Supply of Contact Lenses

                                                                        GSTHST Rulings and
Interpretations Directorate
Place Vanier, Tower C, 10th Floor
25 McArthur Avenue
Vanier, Ontario
XXXXX                                                                                 K1A 0L5

Dear XXXXX,

Thank you for your fax of March 12, 1998 concerning the application of the Goods and Services Tax (GST)Harmonized Sales Tax (HST) to supplies of contact lenses.

Interpretation Requested

You have raised concerns about the application of the GSTHST to the supply of prescription contact lenses. In light of GSTHST Policy Paper P211 entitled "Whether Parts for Prescription Eyewear (Partly Finished Lens Blanks and Frames) Are Specially Designed Parts For Purposes of Section 32 of Part II of Schedule VI to the ETA", you propose that the supply of contact lenses be given a zerorated status to provide equitable treatment with the supply of parts for prescription eyeglasses. The following addresses this issue:

Interpretation Given

The supply of contact lenses is treated as follows, for GSTHST purposes:

Section 9 of Part II of Schedule VI to the Excise Tax Act (ETA) provides a zerorated GSTHST status for the supply of the following:

"A supply of eyeglasses or contact lenses when the eyeglasses or lenses are supplied on the written order of an eyecare professional for the treatment or correction of a defect of vision of a consumer named in the order where the eyecare professional is entitled under the laws of a province in which the professional practices to prescribe eyeglasses for such purpose."

Under this provision the supply of corrective contact lenses is zerorated when supplied under the written order of an eye care professional to treat or correct a defect of vision of a consumer named in the order. This zerorated status is only available when the supply is made where there is acceptable evidence of the written order.

However, the provision, (as amended effective April 24, 1996) does not state that the supply must be made to the "consumer so named in the order". Nor does it state that the supply must be made to any consumer. For example, where an insurance company pays the supplier for a consumer's corrective contact lenses, under the ETA the recipient of the supply is the insurance company. Under section 9, the supply to the insurance company is zerorated as long as there is a written order from the eyecare professional. This also holds true where an optician purchases a set of corrective contact lenses to fulfill a prescription for a consumer and where the optician furnishes his supplier with a copy of the written order. In these circumstances the supply would also be zerorated.

We have not confirmed whether a retail optician typically purchases corrective contact lenses in this fashion or whether heshe typically purchases corrective contact lenses for inventory purposes. Where a retail optician purchases corrective contacts lenses for inventory the supply would be subject to the GSTHST.

Coloured Contact Lenses

Some contact lenses are cosmetic in purpose. These lenses are coloured and are worn to change the appearance of a person's eyes. These contact lenses do not treat or correct a defect of vision. However, in some jurisdictions a prescription is still required. The supply of these contact lenses is subject to the GSTHST. (If, however, a pair of coloured contact lenses is corrective in nature, the supply would also be zerorated under the conditions discussed above.)

Bandage Lenses

Bandage lenses are contact lenses which are used almost exclusively as "bandage lenses" after eye surgery. The lenses are made without corrective properties and are also prescribed. In the absence of corrective properties, the supply of these lenses is also subject to the GSTHST. When supplied to consumers, they are supplied as part of an exempt health care service, eye surgery. The use of bandage lenses can be likened to the use of bandages and other dressings used in other types of surgery. As such, no ITC is available for the GSTHST paid by the supplier of the surgery.

Soft vs Hard Contact Lenses and Whether They Are "Parts"

We understand that when "soft" contact lenses are purchased by the optician, the lens are manufactured for a specific prescription. It is a fully manufactured good sitting in the supplier's inventory. On the other hand, "hard" contact lenses require finishing by a laboratory much like some eyeglass lens blanks. In your letter and our subsequent telephone conversations, you. propose a similar GSTHST treatment for the unfinished "hard" contact lenses to that provided corrective eyeglass lens blanks in GST Policy Paper P211. In response to that position we offer the following response:

Eyeglasses differ from contact lenses in that a pair of prescription eyeglasses are manufactured through the assembly of various parts while a finished pair of contact lenses is comprised of merely a single lens for each eye. Where a soft contact lens is manufactured with corrective properties already incorporated into the product, it is a complete finished product. It is not a "part" for purposes of section 32 of Part II of Schedule VI to the ETA (and subject to the GSTHST unless the supply meets the zerorating conditions under section 9 quoted above). In order to be a "part" the good must be an identifiable and integral constituent component of a larger entity. A good comprised only of itself has no parts per se.

Where hard contact lenses require finishing to incorporate corrective properties, the supply also remains taxable. A hard contact lens cannot be considered a part for itself regardless of whether it needs further finishing. It is not a identifiable and integral constituent component of a larger entity. Therefore, the supply of hard contact lenses which do not yet have corrective properties incorporated into them, is subject to the GSTHST. Where corrective properties are incorporated into the lens, the supply would be zerorated where the supply meets the conditions under section 9 discussed above.

I hope this clarifies this issue. The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the Excise Tax Act, if enacted, could have an effect on the interpretation provided herein. These comments are not rulings and, in accordance with the guidelines set out in section 1.4 of Chapter 1 of the GST Memoranda Series, do not bind the Department with respect to a particular situation. For your convenience, find enclosed a copy of section 1.4 of Chapter 1 of the GST Memoranda Series.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-9590.

Yours truly,

Ken Syer
Senior Rulings Officer
Municipalities and Health Care Unit
Public Service Bodies and Governments Division
GSTHST Rulings and Interpretations Directorate

Encl.:

NCS Subject Code(s)              2