17 January 2003 GST/HST Interpretation 43566 - Application of the GST/HST to In Vitro Diagnostic Products

Dear XXXXX

This is in reply to your electronic mail message XXXXX requesting confirmation of our position on the treatment of the supply of a group of products manufactured for in vitro diagnostic use for purposes of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST).

You advised that XXXXX manufactures a wide range of in vitro diagnostic products from animal blood. These products are for use in an assortment of laboratory procedures. We had indicated in our letter to XXXXX, that the in vitro diagnostic products in question were subject to the GST/HST at the rate of 7% or 15%. However, divergent opinions on the tax status of in vitro diagnostic products may have resulted in different tax treatment applied to the supply of these products and therefore, you would like us to set out our position on how the Canada Customs and Revenue Agency ("CCRA") is applying the GST/HST to these products.

As we explained in our previous letter, test kits for in vitro diagnostic use are new composite products consisting of reagents and articles to be used together in laboratory procedures, such as the testing of bodily specimens. 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 in order for the supply to be zero-rated, it must be a drug that is included among the items listed, by name or description, in Schedule C or D to the federal Food and Drugs Act (the "FDA") referenced in paragraph 2(a) of Part I of Schedule VI to the Excise Tax Act (the "ETA").

When considering the application of the ETA to a supply, the product that is being supplied must be evaluated and not the product's ingredients or components. When the supply is a manufactured product that is either the result of a combination of ingredients or a composite product such as a test kit made up of various substances and/or articles, the manufactured product must be a drug that is named or described in one of the noted FDA schedules to fall within paragraph 2(a) of Part I of Schedule VI to the ETA. Our approach is based on the wording of the ETA, which specifically states "a drug included". It is on this basis the in vitro diagnostic products in question, i.e., test kits, do not fall within paragraph 2(a) of Part I of Schedule VI to the ETA. These products are not themselves drugs named or described in any of the noted schedules to the FDA. In contrast, where a product is a drug named or described in the zero-rating provisions of the ETA, the supply of that product would be zero-rated.

In consideration of the divergent opinions concerning the tax status of in vitro diagnostic products that may have resulted in different tax treatment applied to the supply of these products, the CCRA has adopted the following general approach to address this matter. This approach is based on the letter XXXXX XXXXX. Please note that this approach is limited to in vitro diagnostic test kits that contain a substance included in Schedule C or D to the FDA, such as blood or a blood derivative. There may be circumstances where this approach does not apply and therefore this approach would be considered on a case-by-case basis.

Supplies made prior to XXXXX

•   If the GST/HST was charged but the purchaser did not pay the taxes because of a letter from the CCRA stating that the in vitro diagnostic products in question were zero-rated supplies, then the supplier may issue a credit note the purchaser to reduce the sales to zero-rated status.

•   If the GST/HST was charged, collected and remitted to the CCRA and the purchaser did not file a rebate claim, the supplier may issue credit notes to the purchaser for those supplies made prior to XXXXX.

Supplies made after XXXXX

•   The supplier is required to charge and remit the GST/HST on its supplies of in vitro diagnostic products made after XXXXX. The supplier is subject to assessment under paragraph 296(1)(a) of the ETA for the tax collectible on these supplies.

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