20 January 2003 GST/HST Interpretation 43875 - Application of the GST/HST to Animal Blood Products

Dear XXXXX

This is in reply to your electronic mail message XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to animal blood products, in particular, XXXXX, supplied by XXXXX for use in an assortment of laboratory procedures; i.e., for in vitro use.

Interpretation Requested

You advised that the XXXXX in question is not a reagent and that it can be used in a number of ways that cannot be controlled by XXXXX Additional information on this and similar animal blood products is available on XXXXX You would like our general comments regarding the application of the GST/HST to these products.

Interpretation Given

Based on our review of XXXXX entitled XXXXX that we found on XXXXX, these products are represented as processed animal blood, which may involve the removal of certain properties or the addition of other substances thereby forming a mixture. No specific claim or use for these products is made; rather the XXXXX states that the purpose of these products is for use XXXXX. That is, these products can be used to enrich culture media, as a source of stabilized, washed red blood cells for use in serological procedures, and may also be used in the study of animal pathogens and veterinary research.

As explained in our previous letter to XXXXX, paragraph 2(a) of Part I of Schedule VI to the Excise Tax Act (the "ETA") zero-rates the supply of a drug that is included in Schedule C or D to the federal Food and Drugs Act (the "FDA"). Thus, in order for a product to fall within the zero-rating provision of the ETA, it must fulfill two conditions: (1) it must first be a drug and (2) it must be included, by name or description, in Schedule C or D to the FDA. When considering the application of the ETA to a supply, it is the product that is evaluated and not the product's ingredients or components.

It is our position that generally, supplies of in vitro diagnostic products are subject to the GST/HST at the rate of 7% or 15%. The basis for this position is that these products are not drugs or they are not themselves included, by name or description, in Schedule C or D to the FDA. Therefore, they do not fall within paragraph 2(a) of Part I of Schedule VI to the ETA.

We understand that under the FDA, a product falls with the meaning of "drug" based on the claim made by the manufacturer for the product's intended use. For example, the substance in question must have been specifically manufactured, sold or represented for use in the diagnosis of a disease in humans in order to fulfill the criteria set out in the definition of "drug" in the FDA. In addition, we understand that the regulatory scheme of the FDA classifies and regulates a product as a "drug" based on the claim made by the manufacturer for the product's intended use.

Accordingly, where the supplier has not made any specific claim or labelled the product in a manner that demonstrates that the product is a drug, e.g., that the product was manufactured specifically for use in the diagnosis or treatment of a disease in humans, then the product cannot be considered a drug for purposes of the ETA and the supply would not fall within paragraph 2(a) of Part I of Schedule VI. In our review of products for in vitro use we found that a substance such as animal blood could have multiple uses involving an assortment of laboratory procedures, such as growing cells, research, and the testing of bodily specimens. On the basis of our position on the meaning of "drug" as stated above, a multiple use product, such as the animal blood products manufactured by XXXXX, would not be considered "drugs" for purposes of the ETA.

We are aware that "blood and blood derivatives" is a category of substances listed on Schedule D to the FDA. However, this category does not result in an animal blood product being a zero-rated supply under paragraph 2(a) of Part I of Schedule VI to the ETA where the product in question is not a drug. As noted above, it must first be established that the product in question is a drug as supported by a label or specific claim made by the supplier, regardless of how the purchaser intends to use the product. We note that characterization of a product for in vitro procedures is not sufficient to demonstrate that the product is a drug for purposes of the ETA, because this characterization is only describing the environment in which the product is used.

In the case of a product that is found to be a drug, the next step for ETA purposes is to determine whether that product is included, by name or description, in Schedule C or D to the FDA. For instance, is the product a drug that falls within the category of blood and blood derivatives or is it a composite product that is the result of a combination of ingredients or a test kit made up of various components such as substances and/or articles?

As we indicated in our previous letter to XXXXX, a composite product is distinguishable from its ingredients and components. For instance, a product that is a highly processed mixture composed of many ingredients would not be characterized under the ETA as a supply of blood or blood derivatives, notwithstanding that one of its ingredients is animal blood. Under the ETA, the tax status of a composite product is not governed by any one of its ingredients or components and therefore, in order for the supply to be zero-rated, the composite product must be a drug that is named or described in Schedule C or D to the FDA.

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 CCRA 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