Please note that the following document, although correct at the time of issue, may not represent the current position of the Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence.
XXXXX
XXXXX
XXXXX
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
Case Number: 109536
Business Number: XXXXX
Attention: XXXXX XXXXX
August 31, 2010
Dear XXXXX:
Subject:
GST/HST RULING
Tax Status of Various Medical Devices Supplied by XXXXX
Thank you for your letter of XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the supply of various medical devices manufactured by XXXXX.
HST applies at the rate of 15% in Nova Scotia, 13% in New Brunswick, and Newfoundland and Labrador, and Ontario, and 12% in British Columbia. GST applies at the rate of 5% in the remaining provinces and territories.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
Statement of Facts
We understand the following:
XXXXX.
XXXXX.
XXXXX.
Ruling Requested
You would like to know the tax status of the following medical devices:
XXXXX
XXXXX
XXXXX.
Ruling Given
Based on the facts set out above, we rule that:
1. The supply of the XXXXX are zero-rated pursuant to subsection 165(3) and section 25 of Part II of Schedule VI. The importations of the XXXXX are non-taxable importations pursuant to section 213.
2. The supplies of the following products are subject to GST/HST at the rate of 5%, 12%, 13%, or 15% as applicable pursuant to section 165 in respect of supplies made in Canada and pursuant to section 212 on their importation as there is no provision in the Act that would relieve these supplies of the GST/HST :
• XXXXX
• XXXXX
• XXXXX.
This ruling is subject to the qualifications in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service. We are bound by this ruling provided that none of the above issues are currently under audit, objection, or appeal, that no future changes to the ETA, regulations or our interpretative policy affect its validity, and all relevant facts and transactions have been fully disclosed.
Explanation
Generally all supplies of goods and services made in Canada are subject to the GST/HST unless specifically relieved under the ETA. There are exceptions for medical devices that are specifically identified in Part II of Schedule VI as being zero-rated; i.e., the tax applies at the rate of 0%. If a medical device is not included in Part II of Schedule VI, then the supply of the medical device remains subject to tax at the rate of 5%, 12%, 13%, or 15% as applicable.
Section 212 imposes the GST at a rate of 5% on goods imported into Canada. It provides that every person who is liable under the Customs Act to pay duty on such goods, or would be so liable if the goods were subject to duty, is liable to pay GST on the value of the goods.
Subsection 212.1(2) imposes the provincial component of the HST at a rate of 8% in respect of certain importations by residents of the provinces of New Brunswick, Newfoundland and Labrador, and Ontario. This subsection also imposes the provincial component of the HST at a rate of 10% in Nova Scotia and 7% in British Columbia. This tax applies in addition to the tax imposed under section 212. Generally, the tax imposed under section 212.1(2) will be collected by the Canada Border Services Agency ("CBSA") at the time of importation, unless pursuant to subsection 212.1(3), the goods in question are accounted for as "commercial goods" under section 32 of the Customs Act.
The CBSA administers the Customs Act and any inquiries regarding the interpretation and the administration of that Act should be directed to them. They can reached at 1-800-461-9999.
Generally, all goods imported into Canada are taxable for GST/HST purposes 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. An importation of XXXXX is considered to be a non-taxable importation for GST/HST purposes by virtue of the fact that it qualifies for zero-rated status (taxed at 0%) under section 25 of Part II of Schedule VI.
General Information - Part II Schedule VI
Part II of Schedule VI lists medical devices for human use that are zero-rated (taxable at 0%) under the ETA. Some devices are zero-rated in their own right (e.g. supplies of artificial eyes, artificial teeth, hearing aids) while other devices are zero-rated only when supplied under certain conditions (e.g. on the written order of a medical practitioner for use by a consumer named in the order, or specially designed for use by an individual with a disability).
The policy intent of Part II is to provide tax relief on devices and appliances for use by individual consumers. This intent is apparent by the specific devices and appliances named in Part II and some of the requirements for zero-rating, e.g. "... specially designed for use by an individual with a disability", "... that can be used in the residence of an individual", "... supplied on the written order of a medical practitioner for use by a consumer named in the order".
Accordingly, in general Part II does not apply to devices and other items designed for use by a hospital for surgical procedures, or that are designed for use on a temporary basis as a result of a surgical procedure.
It will be a question of fact whether a specific item meets the criteria listed at a specific zero-rating provision. Such a determination requires research and analysis of the facts particular to that item.
XXXXX
Section 25 of Part II of Schedule VI zero-rates "A 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." The CRA considers a medical or surgical prosthesis to be an artificial 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 artificial device could be an externally worn device or an implanted device that is worn internally. Where the device is not to be permanently implanted into the recipient, it would not qualify as a surgical prosthesis.
The XXXXX are permanently implanted and provide support to parts of the body (XXXXX). These devices would be zero-rated pursuant to section 25 of Part II of Schedule VI.
XXXXX
Section 32 of Part II zero-rates "A supply of a part, accessory or attachment that is specially designed for a property described in this Part." In other words, to be zero-rated under section 32 the item must be a part, accessory or attachment that is specially designed for a property that is zero-rated in Part II of Schedule VI.
Some products may have been originally designed for some other purpose and later turned to other uses, such as being used with medical devices. However, the fact that medical devices can be used with these products does not mean that these products are "specially designed" parts, accessories or attachments for the medical devices. The qualifier "specially designed" imposes a restriction on the word "designed" which excludes general-purpose products from the zero-rating provision. The specially designed article is not reasonably expected to have an alternate use.
XXXXX. XXXXX are used with other products such as certain XXXXX. As they are used with other devices which are not zero-rated in Part II of Schedule VI they would not be considered to be specially designed for the XXXXX.
XXXXX.
XXXXX
Your letter stated that you felt that the XXXXX should be zero-rated as orthotic devices as they are utilized to treat bones of the skeletal system. Section 23 of Part II of Schedule VI zero-rates "A supply of an orthotic or orthopaedic device that is made to order for an individual or is supplied on the written order of a medical practitioner for use by a consumer named in the order."
For an orthotic or orthopaedic device to be zero-rated pursuant to section 23 it would have to either be:
(i) made to order for an individual, or
(ii) supplied on the written order of a medical practitioner for use by a consumer named in the order.
XXXXX would not be zero-rated pursuant to section 23 as they do not meet either of the two conditions of that section. XXXXX are sold in standard sizes and would not be considered to be made to order for an individual. XXXXX are tools used by a medical practitioner in the provision of a health care service. Health care services can be either a commercial activity or an exempt supply depending on the type of service being supplied. The definition of "consumer" in subsection 123(1) of the ETA excludes individuals who use the property in a commercial activity or in the making of an exempt supply. As XXXXX are utilized by a medical practitioner to treat bones of the skeleton, the XXXXX would not be considered to be used by a consumer and the second condition of section 23 would not be met.
XXXXX
No zero-rating provision in Part II of Schedule VI would be applicable to the supplies of the XXXXX. Section 23 would not apply for the same reasons listed above for XXXXX. XXXXX would not be considered to be a medical or surgical prosthesis pursuant to section 25 as they 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. XXXXX.
XXXXX
Section 11.1 of Part II of Schedule VI provides zero-rated status to the supply of an orthodontic appliance. Section 32 of Part II of Schedule VI provides zero-rated status to the supply of any part, attachment, or accessory that is specially designed for a zero-rated item listed in Part II of Schedule VI.
Given the vast number of parts used to fabricate an orthodontic appliance and the difficulty in identifying those parts that are specially designed for orthodontic appliances, CRA has worked in concert with the Canadian Dental Association and the Canadian Association of Orthodontists to resolve the issue by adopting the following position:
a) all parts for orthodontic appliances imported into or purchased in Canada prior to their actual use will be treated as being subject to GST or HST; and
b) qualifying registered dentists, orthodontists, and dental suppliers acquiring the above parts either for resale or for use as parts in a zero-rated orthodontic appliance can recover the tax paid by claiming input tax credits where they meet the requirements for claiming input tax credits, such as documentary requirements.
With this position, CRA has simplified the administration of the GST/HST and it is supported by both the Canadian Dental Association and the Canadian Association of Orthodontists. Please note that specially designed parts do not include parts with alternative uses (unless the only alternative use is also as a specially designed part for another zero-rated medical device). Further, specially designed parts do not include goods which require further manufacture before being used in or incorporated into the orthodontic appliance, nor do they include materials such as powders and pastes. Materials which are used to make parts are not parts for the purposes of section 32 of Part II of Schedule VI.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-954-7952. 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,
Arthur Blommesteijn
Municipalities and Healthcare Services Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate
UNCLASSIFIED
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