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.
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 11th floor
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 188624
Dear [Client]:
Subject: GST/HST RULING
Supplies of Drugs on the List of Drugs for an Urgent Public Health Need
Thank you for your [correspondence] of December 20, 2017, concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to the sale of drugs on the List of Drugs for an Urgent Public Health Need.
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, opioid crisis or a military emergency 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), the issuance of an Interim Order by the Minister of Health and the Access to Drugs in Exceptional Circumstances.
3. 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). This program is designed to address individual patient needs and requires an application to be made for a particular drug by the treating practitioner. The authorization is issued for a specific quantity of that drug and a new authorization is required if treatment is sought for additional patients.
4. An Interim Order by the Minister of Health is issued when immediate action is required to deal with a significant risk to health, safety or the environment. The Order is valid for a maximum of one year and cannot be renewed. An Order can be used to address a particular emergency but may not be an appropriate mechanism for an on-going public health need as it is only valid for a short period of time.
5. The Access to Drugs in Exceptional Circumstances is a regulatory pathway to provide access to a drug that is not authorized for sale in Canada in order to provide a population-based response to a public health need. The Access to Drugs in Exceptional Circumstances allows for the importation and sale of a foreign authorized drug that is on the List of Drugs for an Urgent Public Health Need (the “List”).
6. In order to provide this pathway, the FDR was amended to add Division 10, Access to Drugs in Exceptional Circumstances, to Part C of the FDR, effective June 20, 2017.
7. Subsection C.10.001(2) of the FDR allows any person who holds an establishment licence that authorizes the importation of a drug to import a drug for which a notice of compliance has not been issued or for which a drug identification number has not been assigned if the following conditions are met:
a. A public health official has, within the past year, notified the Minister of Health in writing of an urgent public health need for the immediate use of the drug within their jurisdiction and the intended use or purpose of the drug.
b. The drug is authorized by a foreign regulatory authority in the United States, Switzerland or the European Union to be sold for the same use or purpose.
c. The drug is in the same category as the category for which the establishment licence was issued.
d. The drug is imported directly from the country in which it is authorized to be sold by the foreign regulatory authority.
e. The drug is one for which the following information is set out on the List:
i. brand name,
ii. medicinal ingredients,
iii. dosage form,
iv. strength,
v. route of administration,
vi. identifying code or number, if any, assigned by the foreign regulatory authority.
8. Subsection C.10.002(1) exempts the sale of a drug that was imported under subsection C.10.001(2) from the provisions of the FDR only if the drug is sold, within the jurisdiction of a public health official who has notified the Minister of Health of the urgent public health need, for use in respect of the same urgent public health need for which it was imported.
9. The List is incorporated by reference into the FDR and is published on the Government of Canada website. The Minister of Health will add drugs to the List at his/her discretion based on notifications made by public health officials.
10. A drug will be removed from the List if more than a year has passed since the last notification unless the Minister of Health is once again notified of the continued need for the drug to address the same public health need in the jurisdiction.
11. Drugs on the List are imported and sold pursuant to Division 10 of Part C of the FDR.
RULING REQUESTED
You would like to know if the supply of a drug on the List of Drugs for an Urgent Public Health Need is zero-rated for GST/HST purposes.
RULING GIVEN
Based on the facts set out above, we rule that the supply of a drug on the List of Drugs for an Urgent Public Health Need that is sold pursuant to Division 10 of Part C of the FDR, is zero-rated for GST/HST purposes pursuant to paragraph 2(f) of Part I of Schedule VI to the ETA. In addition, importations of drugs on the List of Drugs for an Urgent Public Health Need are non-taxable importations for GST/HST purposes pursuant to section 213 of the ETA.
EXPLANATION
The general rule in section 165 of the ETA is that every recipient of a taxable supply made in Canada shall pay tax calculated at the applicable rate depending on the province in which the supply is made, on the value of the consideration for the supply, unless the supply is zero-rated. The tax rate in respect of a zero-rated supply is 0%. A zero-rated supply is a supply that is included in Schedule VI to the ETA.
Paragraph 2(f) of Part I of Schedule VI to the ETA zero-rates “a drug the supply of which is authorized under the Food and Drug Regulations for use in an emergency treatment”. 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, and
- The authorization must be for use in an emergency treatment.
The first condition in paragraph 2(f) is that the supply must be a supply of a drug. The List contains drugs that are not authorized in Canada, meaning that the drugs have not gone through the application, review and authorization process that is required for products to be marketed in Canada. The purpose of Division 10 of Part C of the FDR is to provide a regulatory pathway to provide access to drugs which are required during a public health crisis. Therefore, any supply of a product included on the List and supplied pursuant to Division 10 of Part C of the FDR will be a supply of a drug, meeting the first condition of paragraph 2(f) of Part I of Schedule VI.
The second condition in paragraph 2(f) of Part I of Schedule VI is that the supply of the drug must be authorized by the FDR. Sales of drugs on the List are made pursuant to Division 10 of Part C of the FDR. Subsection C.10.002(1) exempts the sale of drugs on the List from the provisions of the FDR under certain conditions. As noted above, all of the drugs on the List are drugs that are not authorized in Canada. The supply of the drugs on the List are authorized by the FDR as the sales of the drugs would not be permitted without subsection C.10.002(1) exempting the sale from the provisions of the FDR.
The final requirement of paragraph 2(f) of Part I of Schedule VI is that the FDR must authorize the supply of the drug for use in an emergency treatment. The requirements for a drug to be on the List demonstrate that the authorization is for use in an emergency treatment. For a drug to be put on the List, the Minister of Health must receive notification from a public health official indicating that there is an urgent public need for the immediate use of the drug as well as the intended use of the drug. The public health event should be exceptional in nature, such that current emergency response measures are not sufficient to deal with it, and access to the drug is necessary to decrease or eliminate the risk to the public. Another indication that the supply is authorized for use in an emergency treatment is that the authorization provided by subsection C.10.002(1) is limited to sales of the drug in the jurisdiction of the public health official who notified the Minister of Health of the urgent public health need for use in respect of the same urgent public health need for which it was imported.
Therefore, the purpose of the List is to authorize sales of drugs to provide a population-based emergency response to a public health crisis. Sales of drugs on the List, when sold pursuant to Division 10 of Part C of the FDR, meet the conditions of paragraph 2(f) of Part I of Schedule VI to the ETA and would be zero-rated supplies for purposes of the GST/HST.
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. Supplies of drugs on the List are zero-rated pursuant to paragraph 2(f) of Part I of Schedule VI. Therefore, pursuant to section 213, drugs on the List are not subject to tax upon importation into Canada, when imported pursuant to Division 10 of Part C of the FDR.
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(s) given in this letter provided that: none of the issues discussed in the ruling(s) 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.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-670-7932. 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 Sectors Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate
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