CDA Essentials 2018 • Volume 5 • Issue 6

25 Issue 6 | 2018 | N ews and E vents Tax Ruling on Anesthetics Containing Epinephrine: NOT ZERO-RATED But it appears that Patterson was not charging GST/HST on such products between 2005 to 2008. After that time frame, Patterson started to collect and remit sales tax on anesthetics containing epinephrine. The company was audited in 2010 and assessed a penalty of over $1 million for not remitting GST/ HST during that 2005–2008 period. In 2011, Patterson became aware of an earlier decision of Centre Hospitalier Le Gardeur v. Canada (2007) where the courts ruled that a mixture of substances whose main or essential element is a zero-rated drug would also be a zero-rated mixture. Revenue Canada considers zero-rated supplies to be taxable, but at a rate of 0%. Patterson applied to the Tax Court of Canada (TCC) for an extension to argue its appeal of its 2010 assessment and that extension was granted in 2014. Their appeal took place and a decision was handed down in July 2018. The TCC dismissed Patterson’s appeal, concluding that the addition of epinephrine, a drug that is taxed at the rate of 0% (zero-rated), to an anesthetic solution did NOT make the anesthetic solution a zero-rated drug. The TCC ruling stated: “By allowing epinephrine or any other drug listed in s. 2(e) to be mixed with other substances and to characterize this type of mixture with zero- rating would be contrary to policy established by Department of Finance – If Parliament wished to grant zero-rated status under s. 2(e) to other substances or to mixture of drugs, it should amend legislation.” The implications of this recent ruling are that distributors who have been charging GST/HST on its epinephrine-containing anesthetics did so appropriately. But distributors who have not been charging GST/HST on its epinephrine- containing anesthetics are expected to start charging those taxes in the near future. a In 2016, CDAwas advised thatGST/HSTwas being charged on local anesthetics containing epinephrine by some distributors in Canada, but not by others. One distributor that was charging GST/HST at that time was Patterson Dental (“Patterson”). The addition of epinephrine, a drug that is taxed at the rate of 0% (zero-rated), to an anesthetic solution did NOT make the anesthetic solution a zero-rated drug. ➜