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: 245070
Dear [Client]:
Subject: GST/HST RULING and GST/HST INTERPRETATION
Supply of […][a drug]
Thank you for your correspondence of [mm/dd/yyyy], concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to supplies of […][a drug]. We apologize for the delay in this 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.
STATEMENT OF FACTS
We understand the following:
1. An event such as a flu pandemic can occur and create an urgent public health crisis. Sometimes a drug that is needed for immediate use to respond to such an urgent public health crisis is not authorized for sale in Canada but may be authorized for sale in another country.
2. Regulatory pathways that provide access to drugs, that are not authorized for sale in Canada, that are intended for emergency use, include Health Canada's Special Access Programme (SAP).
3. The “SAP enables drugs that are not marketed in Canada to be requested by practitioners for the treatment, diagnosis, or prevention of serious or life-threatening conditions when conventional therapies have failed, are unsuitable, or unavailable. Non-marketed drugs may be unauthorized if they have not been approved by Health Canada.” (Footnote 1)
4. The SAP administers the "Sale of New Drugs for Emergency Treatment" which is an exemption to the Food and Drugs Act (FDA) and the Food and Drug Regulations (FDR).
5. Under section C.08.010(1) of the FDR, the Minister of Health may issue a letter of authorization allowing a manufacturer to sell a drug to a requesting practitioner to treat one, or several patients in a medical emergency. As per the FDR, drugs requested under these provisions (i.e. C.08.010 and C.08.011) must be non-marketed drugs in Canada.
6. […] (the Corporation) is a company located […] [outside of Canada] that develops medicines to improve and extend the lives of patients facing deadly diseases.
7. […] (the drug) […] was developed by the Corporation to treat […][a disease].
8. […]
9. The drug is not currently licensed to be sold into Canada.
10. […].
11. Pursuant to section C.08.010 of the FDR, the Minister of Health issued a letter of authorization, allowing the Corporation to sell the drug to […],[…] for future emergency use for the indication of [the disease].
12. The letter specifies that the Corporation may sell […][a certain quantity of the drug] to […].
RULING REQUESTED
You would like to know whether:
1. The importation of the drug into Canada is taxable.
2. The supply of the drug is zero-rated, provided it becomes licensed for sale in Canada.
RULING GIVEN
Based on the facts set out above, we rule that no GST/HST is payable on the importation of the drug into Canada pursuant to section 213 and section 6 of Schedule VII.
As the drug is not currently licensed for sale in Canada, we consider the ruling request 2 to be in respect of a hypothetical situation. Consistent with the guidelines set out in GST/HST Memorandum 1.4 Excise and GST/HST Rulings and Interpretations Service, the CRA will not issue a ruling in hypothetical circumstances. We will however provide you with general comments in the section entitled “Interpretation”.
EXPLANATION
Non-taxable importations
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 subject to tax 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.
Supplies of the drug are zero-rated under paragraph 2(f) of Part I of Schedule VI. Pursuant to section C.08.010 of the FDR, the Minister of Health has authorized the drug to be sold for use in an emergency treatment for [the disease]. As such, the drug currently meets the conditions under paragraph 2(f) of Part I of Schedule VI and is a zero-rated supply. Consequently, its importation into Canada is not subject to tax pursuant to section 213.
INTERPRETATION GIVEN
Should the drug become licensed for sale in Canada, the question as to whether supplies of the drug would be taxable or zero-rated under Part I of Schedule VI cannot be answered in a ruling because the facts are hypothetical. Instead, an interpretation of paragraph 2(f) of Part I of Schedule VI is provided.
Paragraph 2(f) of Part I of Schedule VI
Paragraph 2(f) of Part I of Schedule VI zero-rates a drug the supply of which is authorized under the Food and Drug Regulations for use in an emergency treatment, but not including a supply of a drug or substance when it is labelled or supplied for agricultural or veterinary use only. Therefore, to be zero-rated under this provision, a supply must meet the following conditions:
- The supply must be a supply of a drug,
- The supply of the drug must be authorized by the FDR,
- The authorization must be for use in an emergency treatment, and
- The drug is not labelled or supplied for agricultural or veterinary use only.
Sections C.08.010 and C.08.011 of the FDR provide for the sale of a new drug used in an emergency treatment. The Special Access Program for drugs: Guidance document for industry and practitioners (Footnote 2) for sections C.08.010 and C.08.011 of the FDR specifically states that the drug in question must be “a non-marketed drug in Canada” (Footnote 3) . Where the drug is approved to be sold in Canada, the drug would not fall within sections C.08.010 and C.08.011 of the FDR, as it will no longer be a non-marketed drug. A letter of authorization from the Minister of Health will no longer be necessary to sell the drug. In addition, the drug will not be used exclusively in an emergency treatment. Consequently, the conditions under paragraph 2(f) of Part I of Schedule VI would not be met if the drug becomes licensed for sale in Canada.
Therefore, where the drug becomes licensed for sale in Canada, the supply would not be zero-rated under paragraph 2(f) of Part I of Schedule VI. It could however be zero-rated under another provision of Part I of Schedule VI depending on its classification by Health Canada.
DISCLAIMER
In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1-4, Excise and GST/HST Rulings and Interpretations Service, the Canada Revenue Agency (CRA) is bound by the ruling given in this letter provided that: none of the issues discussed in the ruling are currently under audit, objection, or appeal; no future changes to the ETA, regulations or the CRA’s interpretative policy affect its validity; and all relevant facts and transactions have been fully and accurately disclosed. The interpretation given in this letter, including any additional information, is not a ruling and does not bind the 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 873-455-1361. Should you have additional questions on the interpretation and application of the GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.
Sincerely,
Kassandra Leonard
Rulings Officer
Health Care Sectors Unit
Public Services Bodies and Governments Division
GST/HST Rulings Directorate
FOOTNOTES
1 Special Access Program for drugs: Guidance document for industry and practitioners - Canada.ca, Introduction, Purpose/overview
2 Idem
3 Idem, Overview of the regulatory framework
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