17 August 2004 GST/HST Interpretation 53462 - Effective date of Municipal Rebate at the Rate of 100%

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.

Dear XXXXX:

This is in reply to your facsimile message XXXXX, with attachments, addressed to XXXXX.

XXXXX. We note that in your letter you indicated a concern that some of your competitors may not be charging the GST/HST on similar supplies. We understand that you brought this issue to the attention of XXXXX and that XXXXX has undertaken action to address this issue.

To assist you in understanding how the GST/HST applies to the products XXXXX, we are providing you with the following interpretation of the Excise Tax Act (the ETA), which is the legislation under which the GST/HST is imposed.

Interpretation

The general rule under the ETA is that all supplies are subject to the 7% GST (or to the 15% HST for supplies made in New Brunswick, Newfoundland and Labrador, and Nova Scotia), with a limited number of exceptions. The exceptions are those specific supplies described in Schedule V to the ETA (which exempts from tax certain goods and services, such as those provided by charities, school authorities, municipalities, as well as certain health care services) and Schedule VI to the ETA (which applies the tax at a rate of 0% to certain goods and services, such as prescription drugs, basic groceries, and a limited number of medical devices).

In your message, you indicated that you sell "adaptive technology" to individuals who are blind or who have low vision. Please note that there is no general exception from tax in the ETA for "adaptive technology" used by blind individuals; rather only those supplies of medical devices which are specifically identified within the provisions of Part II of Schedule VI to the ETA are subject to tax at the rate of 0%; i.e., are zero-rated. We understand that the specific products XXXXX sells are computer hardware and software. XXXXX also supplies services to its clients, which consist of training and support on the use of the computer hardware and software. XXXXX supplies these services separately and charges a separate amount for the supply of services.

The ETA provides for zero-rated status for certain articles supplied to blind individuals under section 30 of Part II of Schedule VI. Please note that these supplies qualify as zero-rated only when certain conditions are met as set out in the legislation.

Section 30 of Part II of Schedule VI to the ETA

This provision zero-rates the following supplies:

"A supply of an article that is specially designed for the use of blind individuals when the article is supplied for use by a blind individual to or by the Canadian National Institute for the Blind or any other bona fide institution or association for blind individuals or on the order or certificate of a medical practitioner."

Accordingly, all three of the following conditions must be met in order for a supply to be zero-rated under this provision:

1. The supply must be an article that is specially designed for the use of blind individuals. This condition refers only to a product or the good itself, not to services.

2. The article must be supplied for use by a blind individual.

3. The supply must be made

(a) by or to the Canadian National Institute for the Blind ("CNIB") or a similar bona fide institution or association for blind individuals; or

(b) if sold directly to individual consumers, the article must be supplied for the use of a blind individual on the order of a medical practitioner.

Because XXXXX supplies are made directly to individual consumers, this interpretation will focus on the conditions concerning (1) articles specially designed for the use of blind individuals that are (2) supplied for the use of a blind individual (3) on the order or certificate of a medical practitioner.

We accept that "blind individuals" are individuals with visual acuity of 20/200 or 20 degrees or less visual field in both eyes. It is our understanding that individuals with this condition have been referred to as "legally blind" individuals or as individuals with 10% vision or less. Individuals whose vision can be corrected by eyeglasses or contact lenses to exceed these criteria are not considered to be legally blind.

Whether it can be said that a particular article is specially designed for use by blind individuals requires an evaluation of the article's specific design features. The reference to a specially designed article excludes supplies of services and therefore a supply of services would not fall within this zero-rating provision. The term "specially designed" relates to the intention of the original designer or manufacturer as to the ultimate use of the articles as reflected in the qualities and features of the articles themselves. The qualities and features of these articles would be unique to the needs of blind individuals and compensate or alleviate limitations or conditions flowing from blindness. The specially designed features must be significant in that the features make the article recognizably different from similar articles without the features. The specially designed article is not reasonably expected to have an alternate use.

It will be a question of fact whether the second condition that requires the article be supplied for the use of a particular blind individual is met. Note that this condition means that supplies made at the pre-retail level, e.g., sales made by a manufacturer to retailer, as well as importations, would not be zero-rated under this provision.

The third condition requiring that the supply be made on the order or certificate of a medical practitioner is also a question of fact. It is our view that the medical practitioner's order or certificate would flow from the medical practitioner's medical knowledge to specify a particular article that would meet the needs of the blind individual. This condition also excludes supplies made at the pre-retail level, as well as importations, from this provision.

On the basis of the totality of the wording of this provision, each supply made must be evaluated to determine whether the conditions are met; i.e., on the basis that the supply is a particular article specially designed for the use of blind individuals that was made on the order or certificate of a medical practitioner for the use of a particular blind individual.

Additional Comments Regarding the "Specially-Designed" Condition

Some products may have been originally designed for some other purpose and later turned to other uses, such as assisting blind individuals. However, the fact that blind individuals can benefit from these products does not mean that these products were "specially designed" for use by a blind individual. The qualifier "specially designed" imposes a restriction on the word "designed" which excludes general-purpose products from the zero-rating provision. For instance, although certain technology, such as text-to-speech synthesis technology, has been adapted to be of assistance to blind individuals, we have no information to conclude that this technology was specially designed for the use of blind individuals.

The following factors may be relevant in ascertaining the original designer or manufacturer's intention as to the ultimate use of the article:

•   the extent to which the "special design" is expressed in the articles, that is, the articles have features, qualities or capabilities not found in general purpose articles but rather were originally designed for the purpose of addressing the needs of blind individuals;

•   the extent to which the articles are designed for use by blind individuals relative to their extent of use by other individuals; e.g., whether it is in fact used exclusively by blind individuals;

•   the extent to which the advertising and marketing of the articles is directed towards blind individuals, e.g., is it marketed solely for use by blind individuals.

Our general understanding of computer equipment, including the computer hardware and software described in the information you provided, is that this is general-purpose equipment. For instance, computer printers, keyboards, and monitors are not specially designed equipment for the use of blind individuals, notwithstanding that, for example, a printer may have the capacity to print in Braille. Further, the computer equipment was not represented by its suppliers as being specially designed for the use of blind individuals.

XXXXX Supplies

We understand that XXXXX sells computer hardware and software and services to individuals resident in XXXXX. The recipients of these supplies are individuals who have applied for and receive financial assistance under the XXXXX Program XXXXX towards the cost of certain computer hardware and software.

We understand that individuals must meet specific eligibility criteria for XXXXX funding and that there is a process in place for individuals to apply for this funding and to purchase specific equipment. When individuals eligible for XXXXX financial assistance purchase their visual aids from XXXXX, they present a completed provincial form to XXXXX, which describes the equipment that has been approved by XXXXX and the amount of financial assistance that the individual is entitled to under the XXXXX for the purchase of this equipment. XXXXX sets out the full consideration for the equipment as well as any services supplied to the individual, in the invoice made out to the individual. The individual pays part of the consideration to XXXXX and the XXXXX will cover the balance once the individual receives the equipment.

It is important to note that the criteria and process of XXXXX are not determinative that a supply meets the conditions of section 30 of Part II of Schedule VI to the ETA. Therefore, whether an individual receives financial assistance under the XXXXX for a particular purchase is not a factor for purposes of the ETA. An evaluation of whether a supply satisfies the conditions of the ETA must be made without reference to the criteria that apply to the XXXXX.

Products that meet the conditions in the ETA as described above would qualify as zero-rated supplies. However, we understand that there was no support that the computer hardware and software supplied by XXXXX fulfilled these conditions. It is important to note that it is a question of fact whether a supply of computer hardware or software meets the conditions in the ETA of being an article specially designed for the use of blind individuals and supplied to a blind individual under the written order of a medical practitioner.

You indicated in your message that you had previously imported adaptive technology without paying the GST/HST. Please note that the ETA applies equally to imported goods as well as goods supplied in Canada. As noted previously, imported goods as well as sales made by a manufacturer to a retailer would not meet the conditions of section 30 of Part II of Schedule VI to the ETA to be considered non-taxable importations or zero-rated supplies.

For your convenience, find enclosed a copy of section 1.4 of Chapter 1 of the GST/HST Memoranda Series. Should you have any further questions or wish to submit a request for a GST/HST ruling on the application of the ETA to other products supplied by XXXXX, please do not hesitate to contact our XXXXX GST/HST Rulings Centre at XXXXX or call toll-free 1-800-959-8287.

Yours truly,

Susan Eastman
Municipalities and Health Care Services Unit
Public Service Bodies and Governments Division

2004/08 F — RITS 53622 — Valeur de l'importation temporaire d'un aéronef loué