File: 11860-2
C.N.: 2768
Dear Ms. XXXXX
This is to bring to your attention a recent review of the administration of the Excise Tax Act (ETA) which will affect the application of the Goods and Services Tax (GST) as it pertains to the supply of prescription eyewear.
Section 9 of Part II of Schedule VI to the ETA includes the following as GST zero-rated supply:
"A supply of eyeglasses or contact lenses when the eyeglasses or lenses are supplied for the treatment or correction of a defect of vision to a consumer on the written order of an eye-care professional who is entitled under the laws of the province in which the professional practises to prescribed eyeglasses or contact lenses for that purpose."
The Department has administered this provision as follows:
Where supplies are paid for by parties who are not consumers (such as insurance companies and welfare agencies, XXXXX etc.) the zero-rating conditions have not been met. This resulted in supplies of prescription eyewear which were not paid for by a consumer being subject to the GST at 7%. This policy was effective January 1, 1993 when the French version of the ETA was amended to match the English version.
We have reviewed this treatment and would like to announce a change in administration of this provision. This change is in respect of supplies of prescription eyewear on or after January 1, 1993.
The supply of prescription eyewear is zero-rated for GST purposes where a consumer is the recipient of the supply. The term "recipient" is defined under section 123 of the ETA as, in part, "where consideration for the supply is payable under an agreement for the supply , the person who is liable under the agreement to pay that consideration". Where a consumer pays or is liable to pay for the supply of the eyewear, the supply will be considered to be zero-rated.
This means that
• Sales where a consumer is invoiced and pays the amount invoiced for the supply of prescription eyewear remain zero-rated.
• Sales of prescription eyewear where an insurance company reimburses a consumer are also zero-rated because the supply was made to the consumer.
• Where a consumer "assigns" the right to an insurance benefit to the supplier we have revised our position. It is now our position that, in this circumstance, the "recipient" remains the consumer because the consumer is remains the liable party. Therefore, in these circumstances, the supply is also zero-rated.
• This arrangement is unfortunately not available in situations where municipal welfare agencies have entered into contracts (exclusive or otherwise) with prescription eyewear suppliers. In these circumstances, where the recipient is a municipal welfare agency, the supply remains subject to the GST at 7%. Where other organizations have similar contracted arrangements with suppliers of prescription eyewear, the supply may also be taxable at 7%. Suppliers should contact their local Revenue Canada office to determine the application of the GST in these similar circumstances.
Supplies to Provinces
Also, of note is the fact that the Canadian provinces do not pay the GST. In some provinces certain long term welfare cases (e.g. for certain disabled persons) are administered by the provinces. Supplies of prescription eyewear made to these organizations do not attract the GST.
For your information , we have brought this issue to the attention of the Department of Finance who are now examining the issue. If you would like to discuss this matter further, please do not hesitate to contact Ken Syer, A/Senior Policy Officer, at (613) 952-9590.
Yours truly,
J.A. Venne
Director
Special Sectors
GST Rulings and Interpretations
Policy and Legislation Branch
c.c.: E. Vermes
c.c.: M. Brulé
XXXXX
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