In this case, the TCC ruled that illegal drugs sold for “treatment, mitigation or prevention of a disease, …, or its symptoms”, are still “drugs” for GST purposes. The result would be that they’re “zero-rated” under ETA s. VI:I:2(d); i.e., no tax collectible on their sale but the supplier could claim input tax credits.
“[66] A more generic definition is, I find, appropriate, and given the FDA is the primary regulatory regime for the approval and the identification of drugs, and given a textual, contextual and purposive review of the word has lead to no more apt definition, I rely on the FDA definition as being the operative definition of the word “drug” in Schedule VI-I-2 of the Act.
“[67] Does dried marihuana meet that definition?
“It is worth repeating the FDA definition:
“‘drug’ includes any substance or mixture of substances manufactured, sold or represented for use in
“(a) the diagnosis, treatment, mitigation or prevention of a disease, disorder or abnormal physical state, or its symptoms, in human beings or animals,
…
“The Respondent says “drug” should not be defined by its purpose, yet the FDA definition itself does just that by the words “for use in”. Dried marihuana sold for use recreationally is not a drug as defined under the FDA, while dried marihuana sold for use therapeutically is. So it is not appropriate to say dried marihuana is a drug is a drug. It does indeed depend on use.
…
“[69] Yet, let us be clear on the definition. It does not say a drug proven to be effective in diagnosis, treatment etc. or correcting organic functions. It says a substance sold or represented for use in the diagnosis, treatment etc. I find as a fact that Po-Chi was represented for use in treatment of a disease, disorder and for use in correcting organic functions.
…
“[99] The legislation has twisted itself out of shape by requiring the sale to a consumer pursuant to the Controlled Drugs and Substances Act regulations, being the MMARs, without prescription or exemption. It contemplates only lawfully managed drugs. And if a lawfully managed drug can be acquired without prescription (which I have determined dried marihuana can be by ATP) then it is not zero‑rated. And if it is not zero-rated, then dried marihuana that is not subject to the Controlled Drugs and Substances Actregulations cannot be zero-rated. It would be a nonsensical result otherwise. As I have intimated earlier in these Reasons, this area of legislation needs work. If the Government intends that all sales of dried marihuana are to be zero-rated, say so clearly. If the Government intends that all sales of dried marihuana are to be subject to GST, say so clearly. If the Government intends to have dried marihuana as a prescribed drug and only dried marihuana obtained by a prescription is to be zero-rated, say so clearly.”
When taxpayers are convicted of drug trafficking, police refer the case to the CRA which will assess the taxpayer for unreported income tax and GST/HST on a dollar value of assumed drug sales. CRA bases its assessment of drug sales on the amount of cash seized by the police, the value of seized drugs (the estimated street value is assumed to represent prior sales), and a net worth assessment based on bank accounts and other assets and expenditures). Penalties are applied to the under-reported tax.
For drugs, other than marijuana, such as heroin, if the taxpayer could show that the sales were for “therapeutic purposes”, this decision suggests that he or she might eliminate the GST/HST assessment. This is likely to arise in an exceptional case only, such as where a physician has helped patients access pain-relieving narcotics illegally.
As the reasons in this case show, medical marijuana is taxable, due to a peculiarity of the law relating to that drug, which allows “authorizations to possess” under the Marihuana Medical Access Regulations.