28 April 2004 GST/HST Interpretation 48122 - XXXXX

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:

Your letter XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to importations of eyeglass frames, was forwarded to us by the XXXXX Tax Services Office for reply.

Interpretation Requested

You advised that XXXXX is a distributor of eyeglass frames in Canada. The eyeglass frames are manufactured outside Canada, and then imported by XXXXX. Sometimes XXXXX is charged GST on the importation; other times it is not. XXXXX sells the eyeglass frames to optometrists and opticians in Canada and it does not charge the GST on these sales. You are asking about whether there is any specific provision in the Excise Tax Act (the "ETA") for eyeglass frames and whether the GST/HST is payable on the importation of eyeglass frames by XXXXX

Interpretation Given

The general rule under the ETA in section 165 is that all supplies of goods and services made in Canada are subject to the GST/HST at the rate of 7% or 15%. The exceptions are those goods and services that are specifically identified as being exempt from the GST/HST or specifically identified as a good or service to which tax at the rate of 0% applies. Goods and services that fall in the latter category are referred to as "zero-rated".

When eyeglasses or contact lenses are supplied, or are to be supplied, on the written order of an eye-care professional for the treatment or correction of a defect of vision of a consumer name in the order, and the eye-care professional is entitled under the laws of the province in which the professional practices to prescribe eyeglasses or contact lenses for such purposes, these supplies are zero-rated under section 9 of Part II of Schedule VI to the ETA. As a result of this condition, zero-rated status generally occurs when prescription eyewear is supplied at the retail level to consumers.

Where a provision sets out specific conditions for a supply to be zero-rated, all of those conditions must be met. Where eyeglasses do not meet the conditions of being corrective in nature and supplied, or to be supplied, on the written order of an eye-care professional for use by a consumer named in the order, the supply of the eyeglasses will fall under the general rule pursuant to section 165 of the ETA; i.e., these would be taxable supplies subject to the GST/HST at the rate of 7% or 15%.

Because section 9 of Part II of Schedule VI to the ETA only applies to corrective eyeglasses and contact lenses supplied under specific conditions, supplies of eyeglass frames do not fall under that zero-rating provision. Eyeglass frames are components of eyeglasses, but are not themselves corrective eyeglasses.

In response to your question as to whether there is a specific legislative provision for eyeglass frames, please note that eyeglass frames are not themselves specifically included in an exemption or zero-rating provision in the ETA. You also referred to GST/HST Policy Statement P-211 in your letter. This policy statement, which has been rescinded, discussed eyeglass frames in relation to section 32 of Part II of Schedule VI to the ETA. This legislative provision zero-rates the supply of a part, accessory, or attachment that is specially designed for a property described in Part II of Schedule VI to the ETA. The decision in P-211 was that where eyeglass frames met certain criteria, the eyeglass frames were considered to be specially designed parts falling within section 32 of Part II of Schedule VI to the ETA, for purposes of section 9 of that Part. The criteria was set out as follows:

1. The item is a part rather than a material. A part is an identifiable component that does not require further processing prior to taking on unique design characteristics, whereas a material is not so identifiable, e.g., glue.

2. The part is committed by design or nature for use as a part for prescription eyeglasses.

3. The part does not have alternative uses.

P-211 set out the following specific design elements for eyeglass frames that were necessary for them to be considered "parts" under section 32 for purposes of section 9 of Part II of Schedule VI to the ETA:

1. Frame markings (frame size, temple length, manufacturer or vendor, and model and colour); and 2. A lens retention system to enable the installation, removal and replacement of corrective lenses after selection of frame by consumer.

As noted above, P-211 has been rescinded and we have initiated a review of the application of section 32 of Part II of Schedule VI to eyeglass frames. Until our review is complete, we will continue to apply the decision of P-211, as reproduced above, to supplies of eyeglass frames. Thus, should a supplier's sales satisfy the aforementioned criteria, they would be considered to be zero-rated supplies. Please note that should the outcome of our review result in a change in the tax status of eyeglass frames, any such change will apply prospectively.

With respect to your question regarding importations of eyeglass frames, please note that under section 212 of the ETA, 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 required to pay tax on the goods calculated at the rate of 7% or 15% on the value of the goods. Certain medical devices the supply of which is included in Part II of Schedule VI to the ETA may be imported tax-free pursuant to section 6 of Schedule VII to the ETA. However, non-taxable importations generally do not include medical devices that are conditionally zero-rated, such as those medical devices that are zero-rated only when supplied under the written order of a physician or eye-care professional for a consumer named in the order. Importations of such conditionally zero-rated goods as inventory for resale purposes would not meet this condition at the time of importation.

As previously noted, we will consider supplies of eyeglass frames that meet the criteria discussed above to fall within section 32 of Part II of Schedule VI to the ETA. As such, importations of these eyeglass frames will fall within section 6 of Schedule VII to the ETA and thus be non-taxable importations. However, where the supply of eyeglass frames is not included in Part II of Schedule VI to the ETA, then the importation of these eyeglass frames would be subject to the GST/HST at the rate of 7% or 15%.

The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the ETA, if enacted, could have an effect on the interpretation provided herein. These comments are not rulings and, in accordance with the guidelines set out in section 1.4 of Chapter 1 of the GST/HST Memoranda Series, do not bind the Canada Revenue Agency with respect to a particular situation.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-6761.

Yours truly,

Susan Eastman
Municipalities and Healthcare Services Unit
Public Service Bodies and Governments Division

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