Medical marijuana: don’t forget the GST
Pot subject to federal tax, judge rules
Sales of medical marijuana are subject to federal sales tax even when they fall into a largely unregulated grey area, a judge has just ruled in a case that underscores the legal haziness around pot in Canada.
B.C.’s Gerry Hedges earned as much as $114,000 a year selling a strain of pot he named Po-Chi — after his dog — to a Vancouver “compassion club” for medical-marijuana users. Though the police once raided his operation on B.C.’s Gabriola Island and the Harper government has generally discouraged marijuana use, the federal tax department insisted he charge GST on the shipments.
Mr. Hedges refused, arguing his pot was exempt from sales tax because it is akin to a prescription drug.
But tax-court Justice Campbell Miller has ruled that pot is indeed subject to GST, after dissecting the status of a substance that federal law both criminally sanctions and, sometimes, treats as medicine.
He concluded it is more like an over-the-counter drug, for tax purposes, than a prescription medication.
The judge complained, however, that legislation on drugs and GST has “twisted itself out of shape,” and needs to more clearly state when levies should be charged on dried marijuana.
“There is understandable confusion in the industry on this point,” said Judge Miller. “I cannot … say with a great deal of enthusiasm that I have clarified the legislation itself: there remain gaps and inconsistencies.”
Mr. Hedges was not available to talk about the case, and a spokesman for the Revenue Agency declined to comment as the decision might still be appealed. He also said there is no way to determine how much, if any, GST the government takes in on marijuana sales.
Hillary Black, founder of the B.C. Compassion Club that bought Mr. Hedges’ product, said she had been advised not to comment on the case while an appeal is still possible.
The whole tax dispute unfolds against the backdrop of an even greyer area in the fast-evolving medical-marijuana universe — pot-dispensing operations like Ms. Black’s.
Under old federal laws, patients had to first get a certificate from a doctor saying they qualified to use pot medicinally, then a Health Canada permit. Once approved, they could either grow it themselves or buy from the government.
The rules were changed l ast year, now requiring people to obtain a prescription from a physician, then purchase marijuana from one of a number of government-licensed suppliers.
Compassion clubs, or dispensaries, work largely outside that system.
The club that bought from Mr. Hedges — Canada’s first — requires members to obtain a certificate — from a doctor, dentist, naturopath, Chinese medicine practitioner or other health professional — saying the person suffers from one of a number of eligible conditions.
Growers are chosen by the club after staff and some members sample and approve their product, the different “brands” offered on a menu of sorts.
Mr. Hedges had begun growing pot just to treat pain from a congenital hip condition, before agreeing to ramp up production and supply the club, generating sales of $86,000 to $114,000 between 2007 and 2009, the ruling said. The police raid came in 2010.
Five club members who used Po-Chi to treat pain, nausea and other complaints testified at the Tax Court trial earlier this year, saying it offered the kind of relief that prescription drugs had not. “As one member put it, it allowed her to get past the pain and live a normal life,” said Judge Miller.
T he Canada Revenue Agency said Mr. Hedges owed $14,968 for uncollected GST, interest and penalties.
But at the trial, his lawyers argued that marijuana is “zero-rated” — exempt from GST — under a section of the Excise Tax Act that gives a pass to certain drugs that require a prescription or Health Canada exemption.
Judge Miller dismissed the argument.
“Po-chi, I find, is more akin to an over-the-counter drug than a drug acquired by prescription: one has little or no government control, versus significant government control.”
Meanwhile, a pot product called “Pochi” is still available for sale at the B.C. Compassion Club, according to its website.