Please note that the following document, although correct at the time of issue, may not represent the current position of the Canada Revenue Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence du revenu du Canada.
GST/HST Rulings Directorate
Place de Ville, Tower A, 5th floor
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 211976
Dear [Client]:
Subject: GST/HST INTERPRETATION
Importation of Drugs and Biologicals
Thank you for your letter of […][dd/mm/yyyy], concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to the importation of drugs and biologicals as well as tissues and other substances. We apologize for the delay in our response.
The HST applies in the participating provinces at the following rates: 13% in Ontario; and 15% in New Brunswick, Newfoundland and Labrador, Nova Scotia and Prince Edward Island. The GST applies in the rest of Canada at the rate of 5%.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
We understand the following:[…]
INTERPRETATION REQUESTED
You would like to know the following:
1. Whether the importation into Canada of the following [Biologicals] is taxable:
a. Allergenic substances used for the treatment or diagnosis of allergic or immunological diseases
b. Drugs obtained by recombinant DNA procedures
c. Drugs, other than antibiotics, prepared from micro-organisms
d. Drugs that are made from blood
e. Immunizing agents
f. Insulin
g. Interferon
h. Monoclonal antibodies, their conjugates and derivatives
i. Secretin
j. Snake Venom
k. Urokinase
For ease of reference these will be referred to collectively as the “Biologicals”.
2. Are importations of skin grafting tissue, human tissue, cartilage, and tissue used for implants taxable, specifically:
a. skin grafting tissue or material used for medical and reconstructive purposes on a burn victim or human bone tissue used for grafting purposes,
b. human tissue, human biopsy, human blood serum and plasma imported for testing purposes,
c. Juvenile cartilage, human tissue for grafting, collagen, tissue used for implant purposes, and surgical stratice tissue for grafting and implants
INTERPRETATION GIVEN
The GST/HST is a broad-based consumption tax imposed under Part IX of the ETA. Supplies of property and services made in Canada are generally subject to GST/HST at the applicable rate (5%, 13% or 15%, depending on the province in which the supply is made) unless a specific provision in the ETA applies to exempt or zero-rate the particular supply. Exempt supplies are not subject to GST/HST and are set out in Schedule V to the ETA. Zero-rated supplies are taxed at the rate of 0% and set out in Schedule VI to the ETA.
Pursuant to section 212, 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 liable to pay the GST on the goods calculated at the rate of 5% on the value of the goods.
Section 212.1 imposes the provincial part of the HST at the appropriate rate in respect of non-commercial importations by a person who is resident in a participating province (i.e., Nova Scotia, New Brunswick, Ontario, Prince Edward Island or Newfoundland and Labrador). This tax applies in addition to the tax imposed under section 212.
Generally, all goods imported into Canada are taxable unless specifically relieved under section 213. Importations of goods relieved of tax under section 213 are set out in Schedule VII.
Section 6 of Schedule VII provides for the non-taxable importation of goods the supply of which is included in any of Parts I to IV and VIII of Schedule VI, other than section 3.1 of Part IV of that Schedule.
The zero-rating provisions for drugs are contained in Part I of Schedule VI to the ETA. These provisions generally refer to drugs regulated under specific federal legislation. Certain supplies of drugs and biologicals are zero-rated unconditionally while other supplies are zero-rated only when certain conditions related to their supply are met.
The following provisions unconditionally zero-rate supplies of certain drugs and substances:
* Paragraph 2(a) of Part I of Schedule VI zero-rates a supply of a drug included in Schedule C or Schedule D to the Food and Drugs Act (FDA).
* Paragraph 2(c) zero-rates a supply of a drug or other substance included in the schedule to Part G of the Food and Drug Regulations.
* Paragraph 2(d.1) zero-rates a supply of a drug included in Schedule 1 to the Benzodiazepines and Other Targeted Substances Regulations.
* Paragraph 2(e) zero-rates supplies of a number of specifically listed drugs including digoxin, nitroglycerine and naloxone and its salts.
* Paragraph 2(g) zero-rates a supply of a plasma expander.
As a result of these provisions, supplies of these drugs and substances are unconditionally zero-rated throughout the distribution chain.
Paragraphs 2(b), 2(d) and 2(f) of Part I of Schedule VI zero-rate supplies of drugs when certain conditions are met.
Paragraph 2(b) zero-rates a supply of a drug if the drug is set out on the list established under subsection 29.1(1) of the Food and Drugs Act (The Prescription Drug List) or that belongs to a class of drugs set out on that list, other than a drug or mixture of drugs that may, under the Food and Drugs Act or the Food and Drug Regulations, be sold to a consumer without a prescription. In general terms, drugs that are set out on the Prescription Drug List are zero-rated unless the drug can be sold to a consumer without a prescription.
Paragraph 2(d) zero-rates a supply of a drug that contains a substance included in the schedule to the Narcotic Control Regulations, other than a drug or mixture of drugs that may, pursuant to the Controlled Drugs and Substances Act or regulations made under that Act, be sold to a consumer with neither a prescription nor an exemption by the Minister of Health in respect of the sale. If the consumer can purchase the drug with neither a prescription nor an exemption by the Minister of Health, the supply of the drug is not zero-rated throughout its distribution chain.
Paragraph 2(f) zero-rates a supply of a drug the supply of which is authorized under the Food and Drug Regulations for use in an emergency treatment (e.g., a supply of a drug on the List of Drugs for an Urgent Public Health Need).
It should be noted that drugs and substances will not be zero-rated under section 2 of Part I of Schedule VI if they are labelled or supplied for agricultural or veterinary use only.
Section 5 of Part I of Schedule VI zero-rates supplies of human sperm and section 6 of Part I of Schedule VI zero-rates the supply of an ovum, as defined in section 3 of the Assisted Human Reproduction Act.
The most relevant provision in respect of the Biologicals is paragraph 2(a) of Part I of Schedule VI which zero-rates a supply of a drug included in Schedule C or D to the FDA.
Schedule D to the FDA contains the following:
(a) Allergenic substances used for the treatment or diagnosis of allergic or immunological diseases
(b) Anterior pituitary extracts
(c) Aprotinin
(d) Cholecystokinin
(e) Drugs obtained by recombinant DNA procedures
(f) Drugs, other than antibiotics, prepared from micro-organisms
(g) Drugs that are or are made from blood
(h) Glucagon
(i) Gonadotrophins
(j) Immunizing agents
(k) Insulin
(l) Interferon
(m) Monoclonal antibodies, their conjugates and derivatives
(n) Secretin
(o) Snake Venom
(p) Urokinase
The Biologicals are all substances included in Schedule D to the FDA. Where the Biologicals are drugs as defined in the FDA (and are not labelled or supplied for agricultural or veterinary use only) supplies of the Biologicals would be included in paragraph 2(a) of Part I of Schedule VI. Therefore, importations of the Biologics that meet these conditions would be non-taxable importations pursuant to section 213 as they are included in section 6 of Schedule VII.
In your letter you also asked the following about the Biologicals:
* Do the Biologicals have to originate from animal tissue or cultures or micro-organisms?
* Can the Biologicals can be prepared from human blood or blood derivatives?
* Are there circumstances where the importation of human blood is non-taxable?
The condition for zero-rating in paragraph 2(a) is that the supply be of a drug that is included in Schedule C or D to the FDA. The administration of the FDA is the responsibility of Health Canada, questions regarding if the Biologicals have to originate from animal tissues, cultures or micro-organisms or if the biologicals can be prepared from human blood should be directed to Health Canada.
There is no provision that specifically zero-rates the supply of or the importation of human blood. We note that Schedule D to the FDA includes drugs that are or are made from blood. Whether the human blood is being imported in a form that would be included in Schedule D is also a question for Health Canada.
Skin grafting tissue, human tissue, cartilage, and tissue used for implants
In your letter you also asked about the importation of various tissues and other items. As Part I of Schedule VI does not have provisions that zero-rate these items, we also considered the zero-rating provisions for medical devices listed in Part II of Schedule VI. The most relevant provision is section 25 of Part II of Schedule VI which zero-rates the supply of a medical or surgical prosthesis, or an ileostomy, colostomy or urinary appliance or similar article that is designed to be worn by an individual.
Section 1.1 of Part II of Schedule VI requires that for the purposes of zero-rating the supply of any medical or assistive device listed in Part II, other than in section 33, the medical or assistive device must be designed for human use or for assisting an individual with a disability or impairment.
In addition, section 1.2 of Part II of Schedule VI provides that a cosmetic service supply (as defined in section 1 of Part II of Schedule V), and any supply of property or service that is in respect of a cosmetic service supply, that is not made for medical or reconstructive purposes, is not zero-rated under Part II. A "cosmetic service supply" is defined in section 1 of Part II of Schedule V to mean a supply of property or a service that is made for cosmetic purposes and not for medical or reconstructive purposes.
For purposes of section 25, the CRA considers a medical or surgical prosthesis to be an device that permanently replaces a missing part of the body, corrects a physical deformity or malfunction, or supports a weak or deformed part of the body. This device could be an externally worn device or an implanted device that is worn internally.
Products that are resorbed into the body, remodelled into new bone, or act as scaffolding as the new tissue or bone grows would not be prostheses for GST/HST purposes. These types of products perform their functions during the healing process and do not permanently replace a missing part of the body, correct a physical deformity or malfunction, or support a weak or deformed part of the body.
Therefore, where skin grafting material or juvenile cartilage and surgical strattice tissue (mesh) are prostheses that replace a missing part of the body, supplies of these products are zero-rated under section 25 of Part II of Schedule VI. Importations of these products would be non-taxable importations under section 213.
A medical or surgical prosthesis does not include a fluid that is injected into the body to replace or supplement a body fluid. Therefore, dermal fillers, such as collagen and polymer-based products, are not medical or surgical prostheses for GST/HST purposes and are generally taxable supplies.
Human tissue and human biopsy imported into Canada for testing purposes would generally not be considered to be a prosthesis for purposes of section 25 as they are not used to replace a missing part of the body, correct a physical deformity or malfunction, or support a weak or deformed part of the body. They are imported as samples for analysis. Therefore, they would not be zero-rated supplies under section 25 of Part II of Schedule VI. As no other zero-rating provision applies, the importations of these products are generally subject to the GST/HST.
In summary, where the supply of a good is zero-rated under section 25 of Part II of Schedule VI, its importation into Canada is non-taxable under section 213.
Human blood serum and plasma imported into Canada for testing purposes may be non-taxable importations. As discussed above, where human blood serum and plasma is a drug included in Schedule D to the FDA the supply would be zero-rated pursuant to paragraph 2(a) of Part I of Schedule VI and the importation would be a non-taxable importation. The question of whether human blood serum and plasma imported for testing purposes is a drug included in Schedule D to the FDA is a question for Health Canada.
In your letter you ask whether the importation of goods that will be used in exempt heath care services are non-taxable importations. You also ask whether a shipment can be a non-taxable importation if the importer is claiming an end use of manufacturing or distribution or if the importer is a health care service provider.
The GST/HST is a transaction-based tax and for each transaction, the supplier must determine whether the tax is applicable. The importation of a good is a separate transaction from the one that the good is sold or used in. The fact that a good will be used in an exempt health care service, has an end use of manufacturing or distribution or if the good is imported by a health care service provider does not determine whether the importation of that good is a non-taxable importation. As discussed above non-taxable importations are importations that are relieved of tax by section 213. If the supply of a good is zero-rated under a provision in Part I or Part II of Schedule VI, its importation into Canada is non-taxable under section 213. The importation of a good that does not fall into any of the zero-rating provisions would generally be taxable at the applicable rate.
Although it was not indicated that the goods being imported were donated, we provide the following for your information. Section 4 of Schedule VII provides that goods imported by a charity or public institution in Canada, and that have been donated are non-taxable importations. This allows goods that have been donated outside Canada and then imported by a registered Canadian charity or a public institution to be imported free of the GST/HST.
In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, the interpretation(s) given in this letter, including any additional information, is not a ruling and does not bind the Canada Revenue Agency (CRA) with respect to a particular situation. Future changes to the ETA, regulations, or the CRA’s interpretative policy could affect the interpretation(s) or the additional information provided herein.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 343-573-6076. Should you have additional questions on the interpretation and application of GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.
Yours truly,
Art Blommesteijn
Health Care Sectors Unit
Public Service Bodies and Governments Division
GST/HST Rulings Directorate
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