28 March 2003 GST/HST Interpretation 44848 - APPLICATION OF GST/HST Spacer Devices

Dear Sir/Madam:

We are writing concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the supply of spacer devices. We have recently received an inquiry regarding these devices and as a result are writing XXXXX to advise of our position.

Based on our review, we have determined that these products are conditionally zero-rated medical devices under section 5.1 of Part II of Schedule VI to the Excise Tax Act (ETA). That is, where the supply of a spacer device is made on the written order of a medical practitioner for use by a consumer named in the order, it will be zero-rated, meaning it will be taxable at 0%. However, throughout the distribution chain where the two conditions have not been met, the supply of the spacer device will be taxable at 7% or 15% depending on where it is supplied, pursuant to section 165 of the ETA.

Explanation

Part II of Schedule VI to the ETA provides a listing of supplies of medical and assistive devices that are unconditionally or conditionally zero-rated.

Medical devices that are unconditionally zero-rated are zero-rated in their own right or because they have certain design features. An unconditional zero-rating provision attaches no restrictive conditions upon the supply of that product; therefore, the supply stated in the particular provision will be taxed at a rate of 0% throughout the distribution chain. The manufacturer may sell the device to a distributor, the distributor to the retailer and the retailer to the final consumer - all on a zero-rated basis.

Conditionally zero-rated provisions are more restrictive in that the medical device will only be zero-rated when supplied under the specific terms described in the provision. Where the requirements of a conditional provision are met, the supply stated in the particular provision will be zero-rated to the extent allowed in the provision. In circumstances where the terms of a conditional zero-rating provision are not met, the medical device will be taxable at 7% GST or 15% HST depending on where it is supplied, pursuant to section 165 of the ETA.

Our understanding is that a spacer device is an aerosol chamber that attaches to an inhaler and improves the delivery of metered dose inhaler medication. The device is used in the treatment of asthma. It is, therefore, our conclusion that the device is conditionally zero-rated under section 5.1 of Part II of Schedule VI to the ETA.

Section 5.1 of Part II of Schedule VI to the ETA reads:

A supply of an aerosol chamber or a metered dose inhaler for use in the treatment of asthma when the chamber or inhaler is supplied on the written order of a medical practitioner for use by a consumer named in the order.

Where a provision zero-rates a supply with a condition that it is "... supplied on the written order of a medical practitioner for use by a consumer named in the order", both requirements must be met in order for the supply to be zero-rated.

Relating the foregoing to the supply of spacer devices, the device will be zero-rated only in circumstances where it is supplied on the written order of a medical practitioner for use by a consumer named in the order (which generally occurs at the retail level). Conversely, where a spacer device is not supplied on the written order of a medical practitioner for use by a consumer named in the order, for example where it is supplied to a distributor, retailer, hospital or other health care organization, it will be subject to the GST at 7% or HST at 15%, pursuant to section 165 of the ETA.

Should you have any questions or require clarification on the above matter, please do not hesitate to contact me at (613) 954-4395.

Yours truly,

Angela K. Lovric
Municipalities and Healthcare Services Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate