https://decisions.fca-caf.gc.ca/fca-caf/decisions/en/item/461131/index.do
Patterson Dental Canada Inc. v. Canada (February 7, 2020 – 2020 FCA 40, Boivin, De Montigny, Gleason (Author) JJ.A.).
Précis: The taxpayer produced, inter alia, dental products including approximately 20 local anesthetic solutions, 95% of which contained epinephrine. Prior to 2005 it sold these as taxable supplies but changed this when it learned that a competitor was selling them as non-taxable supplies. CRA assessed the supplies as taxable and assessed the taxpayer for $1,111,930.52 for unremitted GST (most of which related to the local anesthetic solutions) plus interest and penalties. The sole question on this appeal was whether the Tax Court erred in finding that the supplies of local anesthetic were taxable. It was common ground that epinephrine on its own could be used to relieve life-threatening situations. The Federal Court of Appeal found that solutions were used for pain control and not to deal with life-threatening situations; as a result they were taxable supplies. Thus the taxpayer’s appeal from the Tax Court decision was dismissed with costs.
Decision: The question before the Court of Appeal boiled down to whether the supplies were used to deal with life-threatening situations:
[22] David M. Sherman in Canada GST Service (Toronto: Thomson Reuters, 1990) (loose-leaf, updated September 2017) vol. C-11, section VI-154.4, confirms that paragraph 2(e) drugs are non-prescription, zero-rated drugs because:
…they are needed for life-threatening conditions where there is no time to obtain a prescription. […] Thus, they are not zero-rated under paragraph 2(b) because they are not on the Prescription Drug List; yet it was considered appropriate to zero-rate them.
[Emphasis added in the original]
…
[27] In the instant case, both common sense and the expert evidence establish that the reason for administration of dental anesthetics - including those containing epinephrine - is pain control (Expert Report of Dr. Gino Gizzarelli, Hearing Exhibit A-3, Appeal Book Tab 12 at p 545; Expert Report of Dr. Pierre Beaulieu, Hearing Exhibit R-1, Appeal Book Tab 14 at. p 588; Expert Report of Eric Ormsby, Hearing Exhibit R-2, Appeal Book Tab 15 at p. 785; examination-in-chief and cross-examination of Dr. Gino Gizzarelli, Appeal Book Tab 8 at p. 96, 119-120; examination-in-chief of Dr. Pierre Beaulieu, Appeal Book Tab 8 at p. 136). Thus, the predominant element in the appellant’s epinephrine-containing anesthetic solutions is not epinephrine but rather the local anesthetic.
[28] It therefore follows that the Tax Court did not err in finding that the appellant’s epinephrine-containing anesthetic solutions are subject to GST.
Thus the taxpayer’s appeal from the Tax Court was dismissed with costs.