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.
[Addressee]
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
Case Number: 122244
December 21, 2010
Dear [Client]:
Subject:
GST/HST RULING
Application of GST/HST to marihuana supplied by Health Canada in accordance with the Marihuana Medical Access Regulations
Thank you for your letter of February 23, 2010, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to supplies of dried marihuana and marihuana seeds made by Health Canada in accordance with the Marihuana Medical Access Regulations.
HST applies at the rate of 15% in Nova Scotia, 13% in Ontario, New Brunswick, and Newfoundland and Labrador, 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 facts as follows:
1. "Cannabis (marihuana)" is included in Schedule II of the Controlled Drugs and Substances Act (CDSA) and, as such, it is a controlled substance for purposes of the CDSA.
2. The CDSA provides that the possession, 'double doctoring', trafficking, possession for the purpose of trafficking, production, importation, exportation and possession for the purpose of exporting of a controlled substance is illegal in Canada unless authorized by regulations to the CDSA.
3. The Marihuana Medical Access Regulations (Regulations) to the CDSA, which came into force on July 30, 2001, provide for medical access to marihuana for people who are suffering from grave and debilitating illnesses, where conventional treatments are inappropriate or are not providing adequate relief.
4. Part I of the Regulations contains the provisions that relate to an "authorization to possess". Pursuant to Part I of the Regulations, the holder of an authorization to possess is authorized to possess a certain quantity of dried marihuana, in accordance with the authorization, for the medical purpose of the holder.
5. Section 4 of Part I of the Regulations provides that a person seeking an authorization to possess dried marihuana for a medical purpose shall submit an application to the Minister of Health, and that the application shall contain:
• A declaration of the applicant
• A medical declaration made by the medical practitioner treating the applicant
• Two copies of a current photograph of the applicant
6. Part II of the Regulations contains the provisions relating to a "licence to produce". A licence to produce can be either a "personal-use production licence" or a "designated-person production licence". Generally speaking, Part II of the Regulations provides that the holder of a licence to produce is authorized, in accordance with the licence, to produce and keep a certain quantity of marihuana for the medical purpose of the authorized person to which the licence relates.
7. In order to obtain an authorization to possess, or a licence to produce, an eligible individual must submit a completed Application for Authorization to Possess Marihuana for Medical Purposes (Application) to the Minister of Health. The Application consists of a number of forms; the combination of forms to be submitted is based on the applicant's specific circumstances.
• Form A, completed by the applicant, provides the necessary background information that allows an assessment of the application. This form is used to apply for an original authorization to possess or for a renewal of an authorization to possess if changes have occurred since the applicant's last renewal or amendment. An authorization to possess is valid for a period of no more than 12 months.
• Form B1 or B2, completed by the applicant's medical practitioner, describes the applicant's medical condition and symptoms. Form B1, Medical Practitioner's Form for Category 1 Applicants, is used for applicants with the following medical conditions:
Medical Condition Symptoms
Multiple Sclerosis; Severe pain, persistent muscle spasms
Spinal Cord Injury; or
Spinal Cord Disease
Cancer; or Severe pain, cachexia, anorexia, weight loss, severe nausea
AIDS, HIV Infection
Severe Arthritis Severe pain
Epilepsy Seizures
OR Applicants who suffer from a symptom treated within the context of providing compassionate end of life care
• Form B2, Medical Practitioner's Form for Category 2 Applicants, is used for applicants who suffer from symptoms of a medical condition other than those conditions listed in Form B1. Applicants who are using Form B2 require an assessment by a specialist, if the applicant's medical practitioner is not a specialist.
• Form C, Application for Licence to Produce Marihuana by Applicant, is completed by applicants who wish to obtain a licence to produce, in order to cultivate their own marihuana.
• Form D, Application for Licence to Produce Marihuana by a Designated Person, is completed by applicants who wish to have someone else grow the marihuana for them (referred to as the "designated person"). Form D must be signed by both the applicant and the designated person.
• Form E1, Application to Obtain Dried Marihuana, is completed by applicants who wish to obtain dried marihuana from Health Canada. Section E1-3 Delivery Instructions gives the applicant a choice between having the dried marihuana delivered to their ordinary place of residence or having it delivered to their medical practitioner. Note 1 to section E1-3 indicates that the applicant should ensure that:
"If the marihuana is being delivered to your medical practitioner, that you have checked, in advance, to be sure that your medical practitioner will accept delivery of it for you".
• Form E2, Application to Obtain Marihuana Seeds, is completed by applicants who wish to obtain marihuana seeds from Health Canada. Section E2-3 Delivery Instructions allows the applicant to have the seeds delivered to them directly, or to have them delivered to the designated person.
• Form F, Consent of Property Owner, is completed and signed by a property owner when the site to be used for the cultivation of marihuana is not the ordinary place of residence of the applicant and is not owned by either the applicant or, where applicable, the designated person.
8. Part IV of the Regulations contains the provisions that relate to the supply of marihuana seeds and dried marihuana. With respect to marihuana seeds, Part IV of the Regulations provides that:
70. The Minister is authorized to import and possess viable cannabis seed for the purpose of selling, providing, transporting, sending or delivering the seed to
(a) the holder of a licence to produce; or
(b) a licensed dealer.
70.1. A licensed dealer producing viable cannabis seed under contract with Her Majesty in right of Canada may provide or send that seed to the holder of a licence to produce.
9. With respect to dried marihuana, Part IV of the Regulations provides that:
70.2. A licensed dealer producing dried marihuana under contract with Her Majesty in right of Canada may provide or send that marihuana to the holder of an authorization to possess.
70.3. A pharmacist, as defined in section 2 of the Narcotic Control Regulations, may provide dried marihuana produced by a licensed dealer under contract with Her Majesty in right of Canada to the holder of an authorization to possess.
70.4. A medical practitioner who has obtained dried marihuana from a licensed dealer under subsection 24(2) of the Narcotic Control Regulations may provide the marihuana to the holder of an authorization to possess under the practitioner's care.
70.5. The Minister may sell or provide dried marihuana produced in accordance with
section 70.2 to the holder of an authorization to possess.
10. The holder of an authorization to possess does not require a prescription in order to obtain marihuana for medical purposes under the Regulations.
11. Since 2003, Health Canada has been supplying dried marihuana and marihuana seeds for medical purposes to seriously ill persons authorized to possess marihuana for medical purposes.
12. The framework by which authorized persons can access Health Canada's supply of marihuana for medical purposes is described in Health Canada's Policy on Health Canada's Supply of Marihuana Seeds and Dried Marihuana for Medical Purposes (Policy).
13. According to the Policy, authorized persons who want to obtain access to Health Canada's supply of marihuana must first submit an Application to Health Canada. If the Application is approved by Health Canada, an approval letter is sent to the applicant informing them that they can purchase marihuana from Health Canada.
14. Under the Policy, the maximum quantity of dried marihuana that may be purchased from Health Canada will be determined based on the daily amount proposed by the medical practitioner on the form that accompanies the application for the authorization to possess. Dried marihuana is supplied in a quantity that is determined, based on the daily amount, to be a 30-day supply. Dried marihuana is shipped to the authorized person, unless the authorized person has arranged for their medical practitioner to receive the dried marihuana on their behalf (by completing section E1-3 Delivery Instructions of form E1, described above).
15. Generally speaking, the Policy provides that marihuana seeds may be purchased from Health Canada on a 'one-time-only' basis. The number of marihuana seeds to be supplied is determined based on the maximum number of marihuana plants for which the holder of a licence to produce has been authorized. The marihuana seeds are shipped to the holder of the corresponding licence to produce.
16. According to the Policy, authorized persons approved to access Health Canada's supply of marihuana are required to pay in advance for all products ordered and supplied under the Policy. The cost of dried marihuana for medical purposes is $5 per gram plus applicable taxes. The cost of marihuana seeds is $20 per package (each package contains 30 seeds) plus applicable taxes.
17. Marihuana contains over 60 cannabinoids and several hundred other chemical substances; however, delta-9-tetrahydrocannabinol (THC) is the most prominent psychoactive cannabinoid component and its concentration determines the "potency" of marihuana.
18. According to the Product Information Sheet on Marihuana (Cannabis spp.) Seeds document, the marihuana seeds have been culled from the marihuana plant, Cannabis sativa L. 'Indica', and are the first generation product of the hybridization of MS-17/338 female plants and the MS-17/596 male plant. The Cannabis sativa L. 'Indica' MS-17/338 is a breeding line with THC concentration typically higher than 10%.
19. The Product Information Sheet on Dried Marihuana (Cannabis) document indicates that the dried marihuana is harvested and cultivated from the selected line MS-17/338 and has a THC level of 12.5 % (+/- 2%).
20. Marihuana is not covered by provincial health insurance plans because it is not an approved therapeutic drug under the Food and Drug Act.
21. [...]. [comments about the supply of marihuana]
Ruling Requested
You would like to know if GST/HST is applicable to a supply of dried marihuana or marihuana seeds made by Health Canada in accordance with the Marihuana Medical Access Regulations.
Ruling Given
Based on the facts set out above, we rule that a supply of dried marihuana or marihuana seeds made by Health Canada in accordance with the Marihuana Medical Access Regulations is taxable at a rate of 5% GST, or 12%, 13%, or 15% HST (depending on the place of supply) as the supply is not zero-rated under Part I of Schedule VI or, in the case of marihuana seeds, section 3.1 of Part IV of Schedule VI.
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
The general rule in section 165 is that every recipient of a taxable supply made in Canada shall pay tax calculated at the rate of 5%, 12%, 13%, or 15% (depending on the place of supply) 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.
Paragraph 2(d) of Part I of Schedule VI 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."
The schedule to the Narcotics Control Regulations lists, in part, "Cannabis, its preparations, derivatives and similar synthetic preparations, including... Cannabis (marihuana)". Accordingly, a supply of a drug that contains cannabis (marihuana) is zero-rated under paragraph 2(d), unless the CDSA or its regulations provide that the drug may be sold to a consumer with neither a prescription nor an exemption by the Minister of Health in respect of the sale.
Pursuant to the Marihuana Medical Access Regulations, made under the CDSA, dried marihuana or marihuana seeds may be sold to a consumer (i.e., the holder of an authorization to possess) without a prescription or an exemption by the Minister of Health in respect of the sale; therefore, the requirements of paragraph 2(d) are not met. Consequently, a supply of dried marihuana or marihuana seeds made by Health Canada is not zero-rated, unless another provision in
Schedule VI applies.
In this regard, there are no other provisions in Schedule VI to the ETA that apply to a supply of dried marihuana made by Health Canada in the circumstances described above; therefore, the supply is taxable at a rate of 5%, 12%, 13% or 15%, depending on the place of supply.
With respect to the supply of marihuana seeds, section 3.1 of Part IV of Schedule VI provides that certain supplies of grain or seeds, or of mature stalks having no leaves, flowers, seeds or branches, of hemp plants of the genera Cannabis are zero-rated. In the case of viable grain or seeds, section 3.1 only applies if the grain or seeds are included in the definition of "industrial hemp" in section 1 of the Industrial Hemp Regulations made under the CDSA, and the supply is made in accordance with that Act, if applicable.
Section 1 of the Industrial Hemp Regulations defines the term "industrial hemp" as follows:
"industrial hemp" means the plants and plant parts of the genera Cannabis, the leaves and flowering heads of which do not contain more than 0.3% THC w/w, and includes the derivatives of such plants and plant parts. It also includes the derivatives of non-viable cannabis seed. It does not include plant parts of the genera Cannabis that consist of non-viable cannabis seed, other than its derivatives, or of mature cannabis stalks that do not include leaves, flowers, seeds or branches, or of fibre derived from those stalks.
The marihuana seeds supplied by Health Canada are not included in the above definition of "industrial hemp" as they are culled from a line of the marihuana plant, Cannabis sativa, which has a THC concentration that is typically higher than 10%. Accordingly, section 3.1 does not apply to the supply of marihuana seeds by Health Canada.
There are no other provisions in Schedule VI to the ETA that apply to a supply of marihuana seeds by Health Canada in the circumstances described above; therefore, the supply is taxable at a rate of 5%, 12%, 13% or 15%, depending on the place of supply.
If you require clarification with respect to any of the issues discussed in this letter, please call Brian Olsen at 613-954-4289. 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,
Philippe Nault
Director
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate
UNCLASSIFIED
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