11 January 2007 GST/HST Ruling 56378 - Eligibility of XXXXX for the 83% rebate available to facility operators

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:

Thank you for your letters XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the supply of XXXXX by XXXXX. We apologize for the delay in this response.

In your letter XXXXX you asked for a GST/HST Ruling confirming that XXXXX qualifies as a zero-rated medical or surgical prosthesis under section 25 of Part II of Schedule VI to the Excise Tax Act (ETA). This GST/HST Ruling letter is in response to that request.

XXXXX.

All legislative references are to the ETA and the regulations therein, unless otherwise specified. Facts pertaining to XXXXX are based on the information you provided, including that contained in the XXXXX package insert. They were also taken from the web sites of XXXXX and XXXXX.

Statement of Facts

We understand that:

1. XXXXX is a XXXXX company involved in the research, development and sale of medical health care products, one of which is XXXXX. XXXXX is a GST/HST registrant.

2. XXXXX.

3. XXXXX.

4. XXXXX.

5. XXXXX is a treatment to decrease pain and discomfort, allowing more extensive movement of the XXXXX. XXXXX.

6. The dosage regimen for XXXXX is dependent on the XXXXX being treated. XXXXX, the recommended treatment regimen for XXXXX is XXXXX injections in the XXXXX. XXXXX.

7. XXXXX treatment affects only the injected XXXXX. It does not produce a general systemic effect.

8. XXXXX.

9. XXXXX.

10. XXXXX is supplied in a XXXXX syringe containing XXXXX of XXXXX. The contents of the syringe are sterile and nonpyrogenic.

11. XXXXX can be ordered directly from XXXXX by calling one of its toll-free telephone numbers.

12. XXXXX does not have a Drug Identification Number (DIN) for purposes of the Canadian Food and Drugs Act.

13. Medical devices are classified into one of Classes I to IV by means of the classification rules set out in Schedule I to the Medical Devices Regulations made pursuant to the Canadian Food and Drugs Act, where Class I represents the lowest risk and Class IV represents the highest risk. Device manufacturers must hold a medical device licence to sell Class II, III or IV medical devices in Canada.

14. XXXXX.

15. XXXXX considers XXXXX to be a medical device because its XXXXX.

Ruling Requested

You would like to know whether the supply of XXXXX qualifies as a zero-rated medical or surgical prosthesis under section 25 of Part II of Schedule VI to the ETA.

Ruling Given

Based on the facts set out above, we rule that the supply of XXXXX does not qualify as a zero-rated medical or surgical prosthesis under section 25 of Part II of Schedule VI to the ETA.

This ruling is subject to the qualifications in GST/HST Memorandum 1.4, Goods and Services Tax Rulings. We are bound by this ruling provided that none of the above issues is 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

Section 25 of Part II of Schedule VI to the ETA 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."

"Prosthesis" is defined in Dorland's Illustrated Medical Dictionary 30th Edition as "an artificial substitute for a missing body part, such as an upper limb, lower limb, eye or tooth, used for functional or cosmetic reasons, or both."

For purposes of administering section 25 of Part II of Schedule VI to the ETA, the CRA considers a medical or surgical prosthesis to be device that is worn externally or implanted to replace a missing body part or assist a defective body part to function normally.

XXXXX is a fluid that is used to temporarily replace or supplement a body fluid XXXXX.

As indicated above, a "medical or surgical prosthesis" is a medical device that is worn externally or implanted to replace a missing body part or support a defective body part. While the ETA does not define "body part", it is recognized that a body part could include a body fluid since it is component of the human anatomy. However, as demonstrated below, section 25 of Part II of Schedule V[I] to the ETA does not zero-rate a fluid that is injected into the body to replace or supplement a body fluid. Rather, section 25 zero-rates medical devices that replace missing body parts such as an organ, limb, eye or tooth. As previously mentioned, the CRA has since expanded that interpretation to include implanted medical devices. A fluid that is injected into a body is not a medical device that is worn externally by an individual or implanted into an individual.

There are several sources that support the interpretation that section 25 of Part II of Schedule VI to the ETA does not apply to fluids that are injected into the body to replace or supplement a body fluid. Beginning with the ETA, for example, the definition of "institutional health care service" in section 1 of Part II of Schedule V of the ETA refers to prosthesis as medical devices that are "installed". Section 25 states:

"any of the following when provided in a health care facility ... (b) drugs, biologicals or related preparations when administered, or medical or surgical prosthesis when installed, in the facility in conjunction with the supply of a service included in any of paragraphs (a) and (c) to (g) ..." (emphasis added)

The 9th Edition of the Concise Oxford Dictionary defines "install" as "place (equipment, machinery, etc.) in position ready for use." Black's Law Dictionary, 6th Edition, 1990, defines "install" as "To set up or fix in position for use or service."

XXXXX is inserted into the body via an intra-articular injection. The word "injection" is defined in Dorland's Illustrated Medical Dictionary 30th Edition as "the act of forcing a liquid into a part, as into the subcutaneous tissues, the vascular tree, or an organ." XXXXX is not a medical device that is "installed" according to the common definition of the word. It is a product that is injected into the body.

Jurisprudence regarding the meaning of medical or surgical prosthesis for purposes of section 25 of Part II of Schedule VI to the ETA supports the position that medical devices contemplated in section 25 of Part II of Schedule VI to the ETA does not include fluids injected into the body to replace or supplement a body fluid. In Montréal Heart Institute et al v. The Queen, 1999 CANLII 241 (T.C.C.), for example, Lamarre Proulx, J.T.C.C. at paragraph 13 states:

"On reading the various definitions, one sees that the word "prosthesis" commonly means a component which is added externally or internally for functional or cosmetic purposes, or both, to replace a limb, a part of a limb or an organ that is seriously damaged or has been destroyed."

It is clear from this Court decision that "medical or surgical prosthesis" in section 25 of Part II of Schedule VI to the ETA was intended to apply to products that are worn externally or implanted into an individual and not those injected into the body to replace or supplement a body fluid.

Dorland's Illustrated Medical Dictionary 30th Edition defines "implant" as "an object, or material, such as an alloplastic or radioactive material or tissue, partially or totally inserted or grafted into the body for prosthetic, therapeutic, diagnostic, or experimental purposes."

To ensure that a fluid injected into the body does not constitute an implant of a "medical or surgical prosthesis", the Medical Devices Regulations SOR/98-282 (Regulations) made pursuant to the Canadian Food and Drugs Act was reviewed. The Regulations define "implant" as "a medical device that is listed in Schedule 2". Schedule 2 lists various implantable devices. The listing is restricted to devices that are implanted into a body to replace a body part (e.g., heart valve; artificial heart) or assist a body part to carry out a normal function (e.g., implantable defibrillators). Products that replace or supplement body fluids are not listed as implants in Schedule 2 of the Regulations.

Accordingly, XXXXX the above findings support the view that its injection into the body is not an implant of a "medical or surgical prosthesis" for purposes of section 25 of Part II of Schedule VI to the ETA.

Based on the textual context in which section 25 of Part II of Schedule VI to the ETA is found and the other findings described above, it is our position that a "medical or surgical prosthesis" does not include a fluid that is injected into the body to replace or supplement a body fluid.

Other comments

With respect to your suggestion that the supply of XXXXX appears to qualify for zero-rating under section 3 of Part I of Schedule VI of the ETA, we offer the following.

Unlike section 2 of Part I of Schedule VI to the ETA which specifically refers to a drug included in one of the regulatory schedules to the Food and Drugs Act, the Food and Drug Regulations, and the Narcotic Control Act, section 3 of the same Part and Schedule to the ETA refers only to a supply of a drug that is for human consumption and dispensed under the conditions described therein. As the ETA does not define "drug", the CRA developed the following to assist in determining whether a product or substance is a drug for purposes of section 3 of Part I of Schedule VI to the ETA. This position is based on a review of federal, provincial, dictionary, and court interpretations of the term "drug".

In order to be a "drug" under this provision, the product or substance must:

•   have a Drug Identification Number ("DIN") for purposes of the Food and Drugs Act;

•   be intended for human use, as demonstrated by the product labelling and marketing scheme;

•   be for use in the diagnosis, treatment, mitigation or prevention of a disease, disorder, or other abnormal condition, for the relief of pain or suffering, or to control or improve any physiologic or pathologic state (i.e., therapeutic use), as demonstrated by the product labelling and marketing scheme; and

•   be used in or on the living body, i.e., in vivo.

As XXXXX does not have a DIN for purposes of the Canadian Food and Drugs Act, section 3 of Part I of Schedule VI to the ETA does not apply to zero-rate its supply.

In summary, XXXXX is not a zero-rated "medical or surgical prosthesis" under section 25 of Part II of Schedule VI to the ETA or a zero-rated drug for purposes of section 3 of Part I of Schedule VI to the ETA. As such, GST/HST applies to its supply.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-954-7952.

Yours truly,

Lynn Fournier Renner
Municipalities and Health Care Services Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate

2007/01/08 — RITS 81231 — Tax Status of Real Estate Commissions