Zero-rated element must be principal element in single supply if supply is to be zero-rated

Tax – Goods and services tax – Zero-rated supplies

Registrant carried on business of selling and distributing dental products and equipment across Canada selling thousands of products including approximately 20 local anesthetic solutions, 95 percent of which contained epinephrine. From May 1, 2005 to December 1, 2008 registrant considered its anesthetic solutions containing epinephrine to be zero-rated supplies for GST purposes and did not charge GST to its clients in respect of them. Assessment was made pursuant to Excise Tax Act (ETA) and Minister of National Revenue assessed registrant $1,111,930.52 for unremitted GST plus interest and penalties. Appeal by registrant was dismissed by Tax Court of Canada. Registrant appealed. Appeal dismissed. It was common ground between parties that sale of anesthetic solutions was taxable supply to which GST was applicable unless particular supply qualified as one of zero-rated supplies listed in Schedule VI to ETA. There were important differences in wording and legislative history between paragraphs 2(a) and (e) of Part I of Schedule VI. Epinephrine in anesthetic solutions was performing different function than when administered in life-threatening circumstances, where it was sole active ingredient in medication. Accordingly, supply of epinephrine in combination with analgesic in registrant’s solutions was not single supply containing taxable and zero-rated element. In alternative, even if solutions were to be regarded as such supply, same result would still be reached. Case law established that zero-rated element must be principal element in single supply if supply was to be zero-rated. Here, epinephrine was not main or predominant element. It followed that Tax Court did not err in finding that registrant’s epinephrine-containing anesthetic solutions were subject to GST.

Patterson Dental Canada Inc. v. Canada (2020), 2020 CarswellNat 284, 2020 CarswellNat 285, 2020 FCA 40, 2020 CAF 40, Richard Boivin J.A., Yves de Montigny J.A., and Mary J.L. Gleason J.A. (F.C.A.); affirmed (2018), 2018 CarswellNat 3674, 2018 CarswellNat 9995, 2018 TCC 112, 2018 CCI 112, Réal Favreau J. (T.C.C. [General Procedure]).

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