27 January 2005 GST/HST Interpretation 53352 - Sections 7, 9 and 13 of Part II of Schedule V to the Excise Tax Act

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 XXXXX, with attachments, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the supply of the XXXXX.

Statement of Facts

On the basis of the information provided as well as our additional research, our understanding of the facts is as follows:

1. You described the XXXXX marketed primarily for use by individuals with Obstructive Sleep Apnea ("OSA"). It delivers slightly pressurized air to keep the throat open during sleep to make breathing more natural and comfortable for an individual.

2. OSA is described as a condition that occurs when an individual repeatedly stops breathing during sleep because his or her upper airway (throat) narrows to the extent that air is prevented from getting into the lungs. During an apneic event, the individual is choking or being asphyxiated because of the lack of air entering the lungs due to the obstructed airway, and this results in a decline in the oxygen level and an increase in the carbon dioxide level within the body.

3. A respiratory disorder is understood as pertaining to a dysfunction or abnormality in the exchange of oxygen and carbon dioxide in the body or of breathing. Individuals with a respiratory disorder generally require ventilatory support to breathe. OSA is a condition associated with a respiratory disorder. Other conditions associated with respiratory disorders include Asthma, Chronic Bronchitis, Cystic Fibrosis, Tuberculosis, and Pneumonia.

4. There are several forms of treatment for OSA and the most common treatment is the use of Continuous Positive Airway Pressure ("CPAP") in the upper airway to support and hold the airway open during sleep. The XXXXX machine evolved from CPAP as a procedure for applying nasal pressure specifically adapted to maintain an open airway in individuals with OSA. Where CPAP is a constant pressure during both inspiration and expiration XXXXX.

5. The XXXXX machine provides non-invasive ventilation that is used as an alternative to invasive procedures such as endotracheal intubation and mechanical ventilation for individuals with dysfunctions of the upper airway. It is commonly referred to as a "non-invasive ventilatory support system", "non-invasive portable home ventilator" and "non-invasive respiratory assist device". It is used typically six to eight hours daily, particularly at nighttime. It is not intended to be used for life-support 16 to 24 hours per day.

6. Use of XXXXX involves wearing a close fitting mask over the nose, which is attached to a supply of continuously flowing air via a flexible plastic hose from an air pump that sits on the floor or bedside table. The flow of air into the mask creates a dilating pressure that is transmitted from the mask through the nose into the upper airway. The pressure delivered just above the vocal cords dilates the upper airway so the breathing is not interrupted.

7. The XXXXX machine has an integrated humidifier, which is an electric heating plate with a water chamber to allow flow through. The humidifier warms and moistens the air delivered by the machine to enhance comfort and compliance with XXXXX. The humidifier addresses dryness in the nasal and upper airway that may be caused by the higher flow of air during positive pressure application. Humidification helps to alleviate discomfort and relieves symptoms such as nasal stuffiness, mouth dryness, and thick nasal secretions.

8. The XXXXX machine is used to provide non-invasive ventilation assistance to individuals in their homes. It is provided to individuals on the order of a physician. The physician prescribes the inspiratory and expiratory pressures for the individual.

9. The XXXXX machine was initially designed for the purpose of treating OSA but its use has expanded to treat other types of respiratory disorders such as chronic pulmonary disease, neuromuscular disease, and congestive heart failure.

Ruling Requested

You would like confirmation that the XXXXX machine is a zero-rated supply described in section 5 of Part II of Schedule VI to the Excise Tax Act (the "ETA").

Ruling Given

Based on the facts set out above, we rule that the XXXXX machine is a zero-rated supply described in section 5 of Part II of Schedule VI to the ETA.

This ruling is subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST/HST Memoranda Series. We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal; that there are no relevant changes in the future to the ETA, or to our interpretative policy; and that you have fully described all necessary facts and transactions for which you requested a ruling.

Explanation

Section 5 of Part II of Schedule VI to the ETA zero-rates the following:

"A supply of an artificial breathing apparatus that is specially designed for use by an individual with a respiratory disorder."

A determination of what constitutes an "artificial breathing apparatus specially designed for an individual with a respiratory disorder" must consider the act of breathing. Breathing is described as the alternate inspiration and expiration of ambient air into and out of the lungs. Breathing is also referred to as "ventilation" and is part of the respiratory process.

When an individual is unable to breathe naturally, breathing must be produced by artificial (not natural or pathological) means. An "artificial breathing apparatus" is therefore an apparatus that produces or maintains breathing; i.e., produces or maintains inspiration and expiration of air into and out of the lungs, in an individual who is unable to breathe naturally or who has a dysfunction pertaining to breathing.

This provision requires that the artificial breathing apparatus must be "specially designed for use by an individual with a respiratory disorder". Respiration is understood to be the exchange of oxygen and carbon dioxide between the ambient air and the cells of the body. A respiratory disorder would therefore pertain to a dysfunction or abnormality in the exchange of oxygen and carbon dioxide in the body or of breathing. Individuals with a respiratory disorder generally require ventilatory support to breathe. Therefore, the apparatus must be designed for a specific purpose.

The criterion that the apparatus is one that is "used by an individual with a respiratory disorder" requires that the apparatus be one that individuals with a respiratory disorder can operate or use themselves. This criterion requires an evaluation of the totality of the circumstances in which the apparatus is used. The factors that should be considered (but not limited to) are: how the apparatus is marketed for sale (is it marketed for sale directly to individuals with a respiratory disorder); the design features and technical complexity of the apparatus; whether the apparatus is designed to be used in a residential setting or an institutional setting; the associated support system required for its installation and operation; and the degree of training required for its operation. This criterion excludes complex medical equipment designed for use in an institutional setting that is marketed for sale to hospitals and requires operation by a specially trained technician or professional.

An "artificial breathing apparatus specially designed for use by an individual with a respiratory disorder" is therefore an apparatus that is designed to be used by an individual, generally in his or her own home, where the apparatus is specially designed to produce or maintain artificial breathing (ventilation) in an individual who is unable to draw air into the lungs and expel air from the lungs naturally because the individual has a respiratory disorder.

The information provided and our additional research indicates that the XXXXX machine was designed specifically for home use to maintain uninterrupted breathing for individuals with a blocked or collapsed upper airway, which results in a respiratory deficiency, by keeping their upper airway open through the delivery of pressure through the nose. Accordingly, the XXXXX machine can be described as "an artificial breathing apparatus specially designed for use by an individual with a respiratory disorder".

The features of the XXXXX machine that are indicative of an "artificial breathing apparatus specially designed for use by an individual with a respiratory disorder" are as follows:

•   The use of noninvasive nasal pressure such as XXXXX was designed specifically to manage breathing problems and other respiratory disorders. The XXXXX machine was designed to maintain inspiration and expiration of air into and out of the lungs in an individual who is unable to breathe naturally or who has a dysfunction pertaining to breathing, such as OSA.

•   The XXXXX machine functions by providing air pressure to keep the upper airway open in the back of the throat just above the vocal cords to address a blocked or collapsed upper airway. It has a long tube that attaches to a mask (nasal, facial or oral), and nasal pillows or a mouthpiece that is worn during sleep. The mask is attached to a supply of continuously flowing air via a flexible plastic hose from an air pump. The flow of air into the mask creates a dilating pressure that is transmitted from the mask through the nose into the upper airway. This positive pressure supports and holds the upper airway open to maintain uninterrupted breathing so that the respiratory process is not interrupted during sleep.

•   An individual with a blocked or collapsed airway is considered to have a respiratory disorder because this condition prevents sufficient air from reaching the lungs to fully inflate them and interrupts the breathing process.

•   The XXXXX machine is small and lightweight and was developed for home use. It is typically used at night during sleep.

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 Health Care Services Unit
Public Service Bodies and Governments Division

2005/01/21 — RITS 53556 — Clarification of Band-Empowered Entities (BEEs): The Status of XXXXX