23 August 2001 GST/HST Interpretation 32543 - Paragraph 3(b) of Part I of Schedule VI to the Excise Tax Act

Dear Sir:

This is in reply to your letter of August 25, 2000, requesting our views on the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to certain products sold by pharmacies. You would like clarification of the Canada Customs and Revenue Agency's (the "CCRA") interpretation of the term "drug" for purposes of section 3 of Part I of Schedule VI to the Excise Tax Act (the "ETA"), and whether or not the supply by a pharmacy of over-the-counter drugs and proprietary medicines, as well as certain health care products, is zero-rated pursuant to paragraph 3(b) of Part I of Schedule VI.

You have advised that the products in question are sold to consumers pursuant to a written prescription by a medical practitioner and include items such as cough medicine (e.g., syrup and cough drops), acetylsalicylic acid (Aspirin), acetaminophen (Tylenol), as well as support bandages, ankle and knee supports, and various other products. The pharmacy invoices XXXXX for sales made to XXXXX at the retail price shown on these products and the pharmacy has not charged the GST to XXXXX. A pharmacist told you that these products are not prescription drugs and a consumer can obtain these products without a prescription. The GST would normally be collected and remitted on the supplies of these products by the pharmacy. However, the XXXXX is of the understanding that the supply of these products is zero-rated by virtue of paragraph 3(b) of Part I of Schedule VI to the ETA when the consumer presents a prescription from a medical practitioner to the pharmacy for the product. We understand that officers with XXXXX advised XXXXX of this position.

Health Canada, which is the national authority that regulates, evaluates, and monitors drugs available to Canadians, regulates proprietary medicines over-the-counter drugs as "non-prescription" drugs. These drugs are available to the general public without a prescription through any retail outlet. Proprietary medicines and over-the-counter drugs are intended for treating the symptoms of minor illnesses that do not require the advice or intervention of a health professional. Examples of over-the-counter drugs are sinus and nasal preparations, many vitamins, minerals, acetylsalicylic acid (Aspirin) and acetaminophen (Tylenol) with a non-prescription therapeutic strength, medicated shampoos, fluoride toothpaste, cough drops and cold remedies.

Meaning of the term "drug"

The term "drug" is not defined in the ETA. Although section 2 of Part I of Schedule VI to the ETA 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, there is no such reference contained in section 3 of Part I of Schedule VI.

For purposes of section 3, the following factors determine whether a product or substance is a "drug." These factors are based on federal, provincial, dictionary, and court interpretations of the term "drug". Section 3, read together with the definitions of "pharmacist" and "prescription", recognize that drug dispensing falls under the jurisdiction of the provinces and these authorities define the term "drug" and regulate the practice of pharmacy. In addition to noting the factors below, it is therefore necessary to consult the relevant provincial legislation respecting the meaning of drug and the dispensing of prescription drugs by pharmacies when applying this provision.

A product or substance will be considered a "drug" for purposes of section 3 of Part I of Schedule VI to the ETA where it:

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

•   is intended for human use, as demonstrated by the product labeling and marketing scheme;

•   is 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 labeling and marketing scheme; and

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

For greater certainty, the meaning of "drug" does not include medical devices, disinfectants that that are not used in vivo, as well as bandages and similar products. Also excluded from the meaning of "drug" for purposes of section 3 are cosmetic products. A cosmetic product is any substance for use in cleansing, improving or altering the complexion, skin, hair or teeth, and includes deodorants and perfumes.

The personal health care products you noted in your letter, i.e., bandages and ankle and knee supports, are not drugs and therefore supplies of these products by a pharmacy are subject to the GST at the rate of 7% or the HST at the rate of 15%.

Meaning of the term "dispense"

The definition of "pharmacist" in the ETA recognizes that drug dispensing is regulated by provincial legislation governing pharmacies. The definition of "prescription" means that the pharmacist be directed by a written or verbal order from a medical practitioner to dispense a stated amount of a drug or mixture of drugs specified in the order for an individual named in the order. Accordingly, the supply of a drug will be zero-rated pursuant to section 3 of Part I of Schedule VI to the ETA when the drug is dispensed by:

•   a medical practitioner, if the drug was dispensed in accordance with provincial regulations governing the dispensing of drugs by a medical practitioner, e.g., a record of the prescription dispensed by the medical practitioner is created and maintained by the medical practitioner containing specific information, the drug is stored under the care and control of the medical practitioner; or

•   a pharmacist on the order of a medical practitioner, if the drug was dispensed in accordance with provincial regulations governing the dispensing of prescription drugs by a pharmacist, e.g., the pharmacist affixed a prescription label to the container and created and maintained a record of the drug dispensed, the drug is stored in a controlled area in the prescription department of the pharmacy and, if it applies, the pharmacist charged a dispensing fee.

Drug dispensing means to provide one or more doses of a prescribed medication in a container that is correctly labelled to indicate the name of the individual, the name of the pharmacy, the contents of the container, and other specific information needed to facilitate correct usage and drug administration (see the Appendix to this letter for detailed information). It includes the responsibility for taking all reasonable steps to ensure pharmaceutical and therapeutic appropriateness and the preparing and releasing of prescribed medication. Please note that drug dispensing does not include administering a drug to an individual or selling a drug by retail methods.

Provincial legislation prescribes the manner in which prescription drugs are to be packaged and labelled, and also regulates dispensing fees. Prescription drugs must be dispensed in child-resistant containers (with specific exceptions) and prescription labels must be affixed to the containers containing specific information. Further, a record of the transaction containing specific information, referred to as a "patient medication profile", must be created and maintained for each drug dispensed pursuant to a prescription.

The non-prescription proprietary medicines and over-the-counter drugs you noted in your letter, i.e., cough syrup and cough drops, acetylsalicylic acid (Aspirin) and acetaminophen (Tylenol), are sold to the general public without a prescription in retail outlets. Although these products may have a DIN and the consumer may have a prescription from a medical practitioner referring to one of these products, the supply of a non-prescription over-the-counter drug that is not dispensed by a pharmacist in accordance with provincial legislation governing the practice of pharmacy is not zero-rated under paragraph 3(b) of Part I of Schedule VI to the ETA.

However, we note that there may be instances where a pharmacist, on the order of a medical practitioner, fills a prescription for a non-prescription drug that is available to the general public over-the-counter. When a pharmacist dispenses such a drug in accordance with provincial regulations governing the dispensing of prescription drugs by pharmacists (i.e., affixes a prescription label to the container, records all the necessary information, creates and maintains a patient medication profile, etc.), the supply of that drug would be zero-rated under paragraph 3(b) of Part I of Schedule VI to the ETA.

Federal government entities are required to pay the GST/HST on their purchases of taxable goods and services. Accordingly, pharmacies are required to charge the 7% GST (or 15% HST where it applies) on the consideration payable by XXXXX on the supplies you described of personal health care products and non-prescription over-the-counter drugs and proprietary medicines that are available to the general public.

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 Unit
Public Service Bodies and Governments Division