Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Principal Issues: Whether portable oxygen concentrators, cylinders and regulators rented for a fee are medical or dental instruments, or tools for the purpose of class 12.
Position: No.
Reasons: See response.
2009-033386
XXXXXXXXXX André Gallant
(613) 957-8961
August 11, 2009
Dear XXXXXXXXXX :
Re: Classification of medical equipment
This is in response to your letter of July 20, 2009 regarding the proper class in Schedule II of the Income Tax Regulations ("Regulations") in which a certain oxygen equipment provided to patients should be included.
Our understanding of the facts is as follows:
1. The taxpayer provides home oxygen services to individuals in the province of XXXXXXXXXX . The services are provided under prescription issued by a qualified medical doctor. These services consist primarily of two interconnected activities:
a. For a fee to either the province or the individual, the taxpayer provides the individual with a portable oxygen concentrator valued at slightly less than $500. This machine increases the oxygen concentration of normal air to medically accepted levels and allows the taxpayer's client to remain in his or her own home rather than be institutionalized; and
b. The taxpayer provides its clients with cylinders of oxygen to allow the clients to leave their home and enhance their quality of life. The cylinders can be carried in a bag or attached to a cart that the clients can take with them whenever they go. The taxpayer sells the oxygen to the clients and maintains the ownership of the cylinders that contains the oxygen. These cylinders cost approximately $25 to $40 each. The cylinders also require a regulator worth $55 to $65 each to dispense the correct quantity of oxygen from the cylinders. Oxygen is considered a prescription drug.
2. The taxpayer has historically capitalized the portable oxygen concentrators, cylinders and regulators in class 8.
As we understand it, you consider the oxygen concentrators, cylinders and regulators as "medical equipment" and therefore would like to know whether they should be included in class 12 (pursuant to paragraph (e) thereof) instead of in class 8 (pursuant to paragraph (i) thereof) of Schedule II of the Regulations.
Our Comments
Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. We are, however, prepared to offer the following comments.
Oxygen concentrators, cylinders and regulators are not specifically mentioned in any paragraph of class 12. However, we have given consideration to whether each of these items would fall into paragraph (e) of class 12 as being "a medical or dental instrument" or in paragraph (h) of class 12 as being a "tool". As you also noted, the 2006 Federal Budget proposed to increase the cost of property falling into paragraphs (e) and (h) of class 12 to an amount of less than $500 from the amount of less than $200 for property acquired on or after May 2, 2006.
In our view, the portable oxygen concentrators, cylinders and regulators would neither be included in class 12(e) as medical or dental instruments nor in class 12(h) as tools. In our view, they would be included in class 8(i) as a tangible capital property not included in another class.
Based on the ordinary meaning of the words "medical or dental instrument" in paragraph (e) of class 12, in our opinion, the mentioned words encompass only instruments used by a doctor or dentist. This interpretation is made clear by the French version of paragraph (e) of class 12, which uses the words "un instrument de médecin ou de dentiste" that roughly translate to "an instrument of a doctor or dentist" This interpretation is further confirmed by the meaning of the word "instrument". After consulting some English and French dictionaries, we conclude that the word "instrument" is generally described as a tool used to perform work, especially one used for precision work in science, technology and medicine: see Webster's New World College Dictionary, 4th ed., Collins English Dictionary, 3rd ed., Le grand dictionnaire terminologique, and Le Nouveau Petit Robert (1995). In our view, this description would not encompass the portable oxygen concentrators, cylinders and regulators.
In our opinion, the portable oxygen concentrators, cylinders and regulators would not be considered tools for the purpose of paragraph (h) of class 12 based on the ordinary meaning of the word "tool" ("outil" in the French version), as discussed in Interpretation Bulletin IT-422, Definition of Tools. Paragraphs 2 and 4 of this bulletin state:
"2. It is the Department's view that a tool is an instrument of manual operation, that is, it is an instrument to be used and managed by hand instead of being moved and controlled by machinery. In order for an asset to be a tool it must be designed to create a physical change in something or to be used as an instrument of measurement or manipulation. Examples are hammers, saws, squares, screwdrivers and hand-held power tools.
...
4. An asset can be a tool in a general sense but its predominating character may be that of machinery and equipment. Thus, an item such as a typewriter which might be considered a tool, is properly regarded as machinery and is placed in class 8."
We trust that these comments will be of assistance.
Yours truly,
S. Parnanzone
For Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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