8 November 2002 GST/HST Interpretation 38072 - Tax Status of Diagnostic Reagents and Test Kits Under the Excise Tax Act

Dear Sir:

This is in reply to your letter of XXXXX, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to imported diagnostic reagents and test kits that are used in the health services sector.

As you are aware, it is our position that generally, supplies of those products referred to as diagnostic reagents and test kits used in laboratories for in vitro testing of bodily specimens are, and were, subject to the GST/HST at the rate of 7% or 15%. The exception are those testing strips, reagents, and tablets described in section 29 of Part II of Schedule VI to the Excise Tax Act (the "ETA"); i.e., blood-sugar testing strips, blood-ketone testing strips, urinary-sugar testing strips, reagents or tablets, or urinary-ketone testing strips, reagents or tablets.

Our position on the tax status of supplies of in vitro diagnostic test kits under the ETA has been communicated in several letters we issued in the past. While there may have been divergent opinions on the tax status of these products, our position was publicly confirmed in several letters that we issued on XXXXX. However, we re-examined our position in response to a number of submissions that we received concerning whether the supply of these products may be zero-rated under section 2 of Part I of Schedule VI to the ETA. We have now completed our review and our position remains that the test kits in question do not fall within the scope of section 2 of Part I of Schedule VI to the ETA and are therefore taxable at the rate of 7% or 15%.

The test kits in question are an entirely new product that consists of reagents and articles intended to be used together to test bodily specimens in a laboratory. A composite product is distinguishable from its components. The tax status of a composite product is not governed by any one of its components and therefore in order for the supply to be zero-rated under section 2 of Part I of Schedule VI to the ETA, the product must be included among the items listed, by name or description, in the schedules to the Food and Drugs Act (the "FDA") and its regulations that are referenced in the ETA.

We recognize that one of the components of a test kit may contain an ingredient that is a substance listed on a schedule to the FDA or its regulations. However, composite products, that is, the test kits, are not themselves included in any of the schedules to the FDA or its regulations that are referenced in section 2 of Part I of Schedule VI to the ETA. The ETA specifically uses the word "included" and therefore, it is the product itself that must be identified in one of the noted schedules. Our approach is based on the wording of the ETA and it is on this basis that test kits do not fall within the scope of section 2 of Part I of Schedule VI. Some products may qualify as zero-rated supplies under this provision. For instance, where a product that is itself included in one of the schedules to the FDA or its regulations, the supply of that product would be zero-rated under the ETA. Thus, it will be a question of fact as to whether the supply of any product, such as a reagent, would in and of itself fall within the scope of the zero-rating provisions in the ETA.

Accordingly, where the supply of a product, e.g., a reagent or test kit, is not included in Part I or Part II of Schedule VI to the ETA, the importation of that product would not fall within the listing of non-taxable importations in Schedule VII to the ETA. Therefore, the GST/HST would apply to the importation of the product at the rate of 7% or 15%.

The foregoing comments represent our general views with respect to the subject matter of your letter. 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) 952-6761.

Yours truly,

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