2 October 2000 GST/HST Interpretation 30920 - PROPOSED LAW Application of GST/HST to Frame and Clip-on Sets - Specially Designed for Prescription Eyeglasses

Dear XXXXX:

This is in reply to your letter of April 4, 2000, with attachments, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to supplies of accessories, parts, and attachments to prescription eyeglasses by your client, XXXXX[.]

Interpretation Requested

XXXXX is a XXXXX that imports into Canada a set that is comprised of an eyeglass frame containing a fake glass and clip-on sunglasses. The frames incorporate a retention system which facilitates the installation, removal and replacement of corrective lenses once the customer has decided to purchase it. The fake glass is discarded when the frame is eventually used to contain prescription lenses. The clip-on sunglasses are designed to be clipped on and worn only with the prescription frames with which they are imported. The frames and clip-on sets are manufactured by the same company and are sold as a unit to wholesalers and distributors. The frames and clip-on sets are considered parts of prescription eyeglasses and are not expected to have any other use or to be used separately from one another.

As a XXXXX does not fill prescriptions written by eye-care professionals. XXXXX sells these sets to retailers such as ophthalmologists and other entities authorized to prescribe and sell prescription eyeglasses. As the importer of record, XXXXX is responsible for the applicable duty and taxes on the importation of the frames and clip-on sets. You are requesting clarification of the following:

1. Is XXXXX required to pay the GST/HST on the importation of eyeglass frame and clip-on sets?

2. Is XXXXX required to charge the GST/HST on sales of eyeglass frame and clip-on sets in Canada?

3. Is XXXXX entitled to claim input tax credits where it has paid the GST/HST on the importation of eyeglass frame and clip-on sets?

Interpretation Given

1. Importations

In accordance with section 9 of Part II of Schedule VI to the Excise Tax Act (the "ETA"), the supply of corrective eyeglasses is zero-rated when 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 practices to prescribe eyeglasses or contact lenses for such purpose. Such a supply generally occurs at the retail level to the consumer, although the legal recipient may be a person other than the consumer, such as an insurance company.

Section 32 of Part II of Schedule VI to the ETA provides for zero-rated status to the supply of a part, accessory or attachment for a property described in Part II. A supply of a part, accessory or attachment for corrective eyeglasses would therefore be zero-rated pursuant to section 32 of Part II of Schedule VI where the conditions of section 9 of that Part are also met.

Pursuant to section 212 of the ETA, every person who is liable under the Customs Act to pay duty on imported goods, or who would be so liable if the goods were subject to duty, is required to pay tax on the goods calculated at the rate of 7% on the value of the goods. Certain medical devices included in Part II of Schedule VI to the ETA can be imported into Canada tax-free pursuant to section 6 of Schedule VII to the ETA. Medical devices that qualify as non-taxable importations are those listed in Part II of Schedule VI where zero-rated status is not conditional on the supply being made on the written order of a medical practitioner (or eye-care professional in the case at hand) issued to a consumer. Accordingly, section 6 of Schedule VII to the ETA applies to those medical devices that are unconditionally zero-rated. Medical devices included in Part II of Schedule VI for which zero-rated status is conditional on the supply being made on the written order of a medical practitioner or eye-care professional issued to a consumer, e.g., eyeglasses, attract GST/HST at the time of importation.

Since section 6 of Schedule VII to the ETA does not apply to conditionally zero-rated medical devices, and XXXXX does not supply corrective eyeglasses pursuant to written orders by eye-care professionals for consumers named in the orders, the importation of eyeglass frame and clip-on sets by XXXXX is subject to the GST/HST at the rate of 7%.

Please note that in addition to the tax imposed by section 212 of the ETA (as noted above), subsection 212.1(2) provides that every person who is resident in a participating province (i.e., Nova Scotia, New Brunswick and Newfoundland) and is liable under the Customs Act to pay duty on imported goods, or who would be so liable if the goods were subject to duty, must pay the provincial portion of the HST calculated at the tax rate for that province on the value of the goods (currently the tax rate in the participating provinces is 8%). However, the provincial portion of the HST does not apply to the importation pursuant to subsection 212.1(3) of the ETA where the goods are accounted for as commercial goods under section 32 of the Customs Act. "Commercial goods" are defined in subsection 212.1(1) of the ETA as goods imported for sale or for any commercial, industrial, occupational, institutional or other like use. If the eyeglass frame and clip-on sets are accounted for as commercial goods, XXXXX which is located in a participating province, is not required in accordance with subsection 212.1(3) of the ETA to pay the 8% provincial tax component of the HST.

An amendment has been proposed to section 9 of Part II of Schedule VI to the ETA which will include in that provision corrective eyeglasses that are, or are intended to be, supplied under the written order of an eye-care professional for a consumer named in the order. The proposed amendment, which will apply to supplies made after October 8, 1999, will extend zero-rated status to supplies of corrective eyeglasses made at the pre-retail level, i.e., from manufacturer or distributor to the retailer. The proposed amendment has the effect of providing zero-rated status to a supply made in the absence of a written prescription from an eye-care professional issued to a consumer. The eyeglasses must still be of the type that are supplied under a written order by an eye-care professional for the treatment or correction of a defect of vision of a consumer named in the order, i.e., prescription eyeglasses. Once the proposed amendment becomes law, these prescription eyeglasses, including their parts, accessories and attachments, will qualify as non-taxable importations for purposes of section 6 of Schedule VII to the ETA.

2. Sales made in Canada

As explained above, the supply of eyeglasses for the treatment or correction of a defect of vision is zero-rated pursuant to section 9 of Part II of Schedule VI to the ETA when the supply is made pursuant to a written order issued to a consumer by an eye-care professional. Section 32 of Part II gives zero-rated status to the supply of parts, accessories or attachments for corrective eyeglasses that are supplied pursuant to a written order by an eye-care professional issued to a consumer. A supply of a part, accessory or attachment for corrective eyeglasses would therefore be zero-rated pursuant to section 32 of Part II of Schedule VI to the ETA where the conditions of section 9 of that Part are also met. As previously noted, such a supply generally occurs at the retail level and thus the supply of frame and clip-on sets made by a distributor to retailers and optomologists is subject to the 7% GST or, where the supply is made in a participating province, the 15% HST.

The proposed amendment to section 9 of Part II of Schedule VI to the ETA previously discussed in this letter will extend zero-rated status to supplies of corrective eyeglasses made at the pre-retail level, i.e., from manufacturer or distributor to a retailer, where the supply is made in the absence of a written order from an eye-care professional issued to a consumer. Thus, effective for supplies made after October 8, 1999, a supply of eyeglasses for the treatment or correction of a defect of vision of a consumer will be zero-rated, provided that the corrective eyeglasses are of the type that are supplied pursuant to a written order by an eye-care professional, i.e., prescription eyeglasses. Accordingly, effective after October 8, 1999, section 32 of Part II of Schedule VI will apply to a supply made at the pre-retail level, i.e., from manufacturer or distributor to retailer, of an accessory, part or attachment to prescription eyeglasses.

Please note that since the proposed amendment to section 9 of Part II of Schedule VI to the ETA is not yet law, suppliers may still charge the GST/HST on supplies of corrective eyeglasses and their corresponding accessories, parts, and attachments made in the absence of a written order from an eye-care professional. However, since the proposed amendment will apply retroactively to October 9, 1999, XXXXX currently has the option of not collecting the GST/HST on its supplies of eyeglass frames and clip-on sets it makes to retailers in Canada.

3. Input tax credits

A person who acquires or imports property or a service for consumption, use or supply in the person's commercial activities is entitled to claim an input tax credit for the GST/HST paid on the acquisition or importation pursuant to section 169 of the ETA. Thus, XXXXX can claim an input tax credit for the GST/HST it paid on the importation of the eyeglass frame and clip-on sets since XXXXX has imported these items for supply in its commercial activities.

As noted above, the proposed amendment to section 9 of Part II of Schedule VI to the ETA is not yet law. Accordingly, Customs will collect the GST/HST on importations by distributors of corrective eyeglasses and their accessories, parts, and attachments, and XXXXX could claim a corresponding input tax credit for this tax.

The foregoing comments represent our general views with respect to the proposed amendment to the ETA as it relates to the subject matter of your letter. Any change to the wording of these proposed amendments or any future proposed amendments to the ETA, 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/HST Memoranda Series, do not bind the Canada Customs and Revenue Agency with respect to a particular situation.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-9592.

Yours truly,

Susan Eastman
Municipalities and Health Care Services Unit
Public Service Bodies and Governments Division