Hedges v. R. - FCA: Medical marihuana not zero-rated for GST purposes

Hedges v. R. - FCA:  Medical marihuana not zero-rated for GST purposes


Hedges v. Canada  (January 25, 2016 – 2016 FCA 19, Nadon, Scott, Rennie (author) JJ. A.).

Précis:  The taxpayer sold medical marihuana which he treated as zero-rated for GST purposes and therefore did not collect or remit GST.  CRA reassessed him for roughly $15,000 on his sales in 2007, 2008 and 2009.  He appealed to the Tax Court where he was unsuccessful.  He then appealed to the Federal Court of Appeal.  The Court of appeal agreed with the Tax Court that medical marihuana was not a “drug” which was zero-rated for GST purposes and dismissed his appeal with costs.

Decision:   The Court found that the Medical Marihuana Access Regulations (MMARs) which provided for the issuance of an Authorisation to Possess (ATP) medical marihuana did not operate to equate medical marihuana to a drug for the purposes of zero-rating under the Excise Tax Act:

[6]               The Medical Marihuana Access Regulations (SOR/2001-227) (“MMARs”) allow a person to obtain an Authorisation to Possess (ATP). An ATP authorizes the possession of dried marihuana (subject to the decision of the Supreme Court of Canada in R. v. Smith, 2015 SCC 34, discussed below) in accordance with the terms of the ATP. While the MMARs require a doctor’s note to obtain an ATP, an applicant’s doctor does not provide a prescription (at least in the traditional, uncontroversial sense). An ATP can only be granted by the Minister of Health.

[27]           The appellant relies on R. v. Smith, 2015 SCC 34, [2015] 2 S.C.R. 602 and in particular the characterization of the MMARs as an exemption.

[28]           The issue in Smith was whether the limitation in the MMARs to the possession of dried marihuana as opposed to other derivatives or formulations of the cannabis resin, such as in a gel, cream or cookie, infringed section 7. The Supreme Court of Canada held that it did, upholding the findings of the trial court that the prohibition on non-dried forms of marijuana was not rationally connect to the protection of the health of and safety of patients who qualify for legal access to medical marijuana. The Supreme Court concluded that under the MMARs the exemption ought to include cannabis derivatives.

[29]           While the Supreme Court uses the language of exemption, it does so in the context of being “exempt from the criminal law.” While holding an ATP may exempt one from the application of the criminal law, it is not an “exemption” as contemplated by fiscal legislation such as the Act. As the judge noted, had the legislators intended to create an exemption for all dried marihuana, on the authority of sections 55 or 56 of the CDSA, then “something similar to the Marihuana Exemption Regulations under the FDA would have been in order.” The decision in Smith is far removed from the question whether marijuana is subject to taxation, and I do not read it to be a determination that the MMARs are an exemption for the purpose of the Act.

As a result the appeal was dismissed with costs.