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How the Goods and Services Tax applies to cannabis in Canada

by Skip Oliva October 07, 2014

Goods and Services Tax

Goods and Services Tax

The medical use of cannabis – marijuana – is controversial in the United States. But other countries, like Canada, allow licensed producers to cultivate and sell marijuana for medicinal purposes. A Canadian judge recently considered the question of how to classify such medical marijuana sales for sales tax purposes.

In Canada, medical marijuana is not taxable if obtained with a doctor’s prescription. But cannabis is subject to the GST if obtained through a legal private club with a just a medical certificate.

Unlike the United States, where sales tax is a purely state and local matter, Canada has a combined federal-provincial sales tax known as a Goods and Services Tax (GST). The GST applies to all sales of property and services, although many categories of transactions are subject to a “zero-rate,” which effectively exempts them from the tax. Under current law, the zero-rate applies to any “drug” listed on the government of Canada’s schedule of controlled substances. This exemption covers most prescription drugs.

Gerry Hedges grew cannabis in British Columbia for sale to a local medical marijuana club. The Canadian government said Hedges failed to collect more than $300,000 in back sales taxes on his cannabis. Hedges appealed the government’s assessment, arguing his cannabis constituted a zero-rate drug.

Judge Campbell J. Miller of the Tax Court of Canada heard the case. In a decision issued last month, Miller agreed with the government and said Hedges’ marijuana was subject to the GST. While the term “drug” includes marijuana, according to Miller, the GST law also requires the drug be made available only by prescription to qualify for the zero-rate. And Canadian law has been muddled on this point. Before 2013, a person only needed a certificate from a medical practitioner before legally obtaining medical marijuana, which according to Miller was not the same thing as a prescription one would give to a pharmacist. Last year, the government amended its regulations to require a prescription, which must be filled by a government-approved dispensary, rather than a private club like the one Hedges dealt with.

Miller said “[t]here is understandable confusion in the industry” as a result of the government’s changing regulations. There are effectively two ways to obtain medical marijuana. If it is obtained from a government dispensary with a prescription, it is considered a zero-rate drug under the GST. But if, as was the case with Hedges’ sales, marijuana is obtained through a private club with a medical certificate, the seller must collect the GST. Miller acknowledged his decision does not totally clarify the law, as “there remain gaps and inconsistencies” due to the government’s evolving approach to medical marijuana.

S.M. Oliva is a writer living in Charlottesville, Virginia. He edits the international legal blog Bonham’s Cases.

Skip Oliva
Skip Oliva


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