VIANARCHRIS
Well-Known Member
By Christopher Guly
February 19 2016 issue
A recent Federal Court of Appeal ruling in a tax case involving medical marijuana may have resulted in more confusion than clarity about the classification of therapeutic cannabis.
In Hedges v. Canada, [2016] FCA 19, a three-judge panel upheld a 2014 Tax Court of Canada decision that dismissed an appeal by British Columbia grower Gerry Hedges.
The appellant challenged a reassessment he received from the Canada Revenue Agency that indicated he owed $14,968.43, including interest and penalties, for failing to collect and remit GST on dried marijuana he sold from 2007 to 2009 to the Vancouver-based B.C. Compassion Club Society (BCCCS), Canada’s oldest medical marijuana dispensary.
Tax Court Justice Campbell Miller concluded that therapeutic marijuana is not zero-rated under the Excise Tax Act, and the federal appellate court held that only drugs sold legally are exempted from the GST. Federal Court of Appeal Justices Donald Rennie, Marc Nadon and André Scott rejected the appellant’s argument that medical marijuana is among the zero-rated drugs included in the Excise Tax Act, and held that Hedges was not a licensed producer under the Marihuana Medical Access Regulations (MMAR) nor were the BCCCS’s sales of marijuana to its members in accordance with the regulations.
(In April 2014, the MMAR were replaced by the Marihuana for Medical Purposes Regulations, or MMPR, which allow only licensed commercial producers to sell medical marijuana.)
Justice Miller said in his Tax Court decision that Parliament should have clearly stated as to whether dried marijuana sales are to be zero-rated, subject to GST, or zero-rated on the basis that this type of cannabis can only be obtained by a prescription — the absence of which has led to “understandable confusion in the industry.”
The Federal Court of Appeal agreed with his assessment.
Toronto tax lawyer David Sherman, who served as Hedges’s co-counsel, said that when the Liberal government presents its proposed marijuana legislation to Parliament, it should amend the Excise Tax Act to zero-rate medical marijuana in contrast to recreational pot, which would be subject to GST or HST.
B.C. lawyer Kirk Tousaw, who is involved in a constitutional court challenge to the MMPR, said that while the Federal Court of Appeal recognized in Hedges that it could not have been Parliament’s intent to exempt from taxation medical marijuana sold by dispensaries, the court’s ruling also affects the 27 Health Canada-licensed producers authorized to sell marijuana to people under the current regulations.
“They grow and sell cannabis lawfully, but even they don’t appear to be exempt from GST.”
Patients purchasing medical marijuana from licensed producers pay GST or HST and claim the tax as medical expenses.
But the Federal Court is soon expected to release a decision that could have an impact on marijuana dispensaries.
Tousaw is co-counsel to a group of plaintiffs who argued that the MMPR violate Charter section 7 by giving patients with medical conditions no choice but to purchase needed marijuana from producers at higher commercial prices, which some people cannot afford, and by not allowing them to grow their own cannabis, as they could under the MMAR.
In Allard v. Canada, [2014] FC 280, the Federal Court granted an interlocutory injunction that allowed people previously authorized to produce and possess marijuana exempt from the repeal of the MMAR until it reaches a final decision.
Osgoode Hall criminal law professor Alan Young said that if the court rules that the MMPR infringe on personal liberties, it could provide some immunity or protection to medical marijuana dispensaries.
“If the government’s program is found to be constitutionally deficient, dispensaries have justification to supply medicine to patients who have the right to choose the way they treat their medical condition,” said Young, who has acted for medical marijuana dispensaries that have run afoul of the law.
He explained that the MMPR’s primary constitutional flaw is that licensed producers sell cannabis at a price most patients, many of whom are on social assistance or disability, cannot afford given their daily dosages — which could amount to hundreds of dollars in expense per week.
“The current program is not subsidized under any health plan, and dispensaries are able to undercut the cost and provide marijuana at a much lower price,” Young said.
Tousaw, who represents a couple of dozen dispensaries in B.C., said that anyone operating them is violating the Controlled Drugs and Substances Act and “putting their own liberty at serious risk in order to provide increased quality of life to their clientele — and that’s a pretty noble mission.
“It’s not as if dispensaries have intentionally sought to be outside the regulatory scheme. They all have consistently sought to be participants in it and the federal government has frozen them out repeatedly, despite dispensaries having knowledge of the medicine and how best to put it in the hands of medical consumers.”
He hopes that when the federal Liberal government unveils its framework for legalizing marijuana, the regulations will allow dispensaries to distribute medical cannabis, and individuals will be able to grow marijuana for medical or recreational purposes.
“If one of the goals of moving toward a legalized system is to eliminate the black market, the government has to make it possible for the legal market to compete.”
Tousaw also hopes that former Toronto police chief Bill Blair, one of Justice Minister Jody Wilson-Raybould’s two parliamentary secretaries appointed to head Ottawa’s efforts to legalize marijuana, will include in his federal-provincial task force to establish a legislative framework, representatives from the dispensary community as well as growers.
“To have a successful transition from an underground industry to one that is lawful, it can’t just be the same old voices of government policy, health and law-enforcement folks who don’t know a tremendous amount about cannabis and only have a prohibition perspective,” he said.
In the meantime, marijuana dispensaries are illegal under federal law — although police are often choosing not to lay charges in such cities as Vancouver, which became the first Canadian municipality to regulate dispensaries last June and now plans to issue licenses to 14 cannabis shops by month’s end.
Still, Vancouver criminal defence lawyer Michael Shapray cautions would-be dispensary owners to tread carefully.
“There are only two ways to be involved in the marijuana business in Canada,” he explained.
“One is to be an industrial producer able to distribute cannabis by mail under the new medical marijuana regime [MMPR] or to be a grower under the old regime [MMAR] that’s still in place because of the ongoing litigation in Federal Court.”
Federal Justice Department spokeswoman Lyse Cantin confirmed in an email that, “dispensaries and other sellers of marijuana not licensed under the current law are illegal, but local authorities must be able to make their own decisions about local enforcement priorities.”
In light of Hedges, dispensaries must also collect and remit GST or HST on any marijuana they sell, Young added.
“I always advise them that the greater risks come from tax assessment, not law enforcement if dispensaries operate with some discretion in large urban centres,” he said.
“I don’t want to equate dispensaries with Al Capone and tax evasion, but the police will always take the easy regulatory route if they want to shut them down, rather than pursuing a difficult criminal prosecution.”
February 19 2016 issue
A recent Federal Court of Appeal ruling in a tax case involving medical marijuana may have resulted in more confusion than clarity about the classification of therapeutic cannabis.
In Hedges v. Canada, [2016] FCA 19, a three-judge panel upheld a 2014 Tax Court of Canada decision that dismissed an appeal by British Columbia grower Gerry Hedges.
The appellant challenged a reassessment he received from the Canada Revenue Agency that indicated he owed $14,968.43, including interest and penalties, for failing to collect and remit GST on dried marijuana he sold from 2007 to 2009 to the Vancouver-based B.C. Compassion Club Society (BCCCS), Canada’s oldest medical marijuana dispensary.
Tax Court Justice Campbell Miller concluded that therapeutic marijuana is not zero-rated under the Excise Tax Act, and the federal appellate court held that only drugs sold legally are exempted from the GST. Federal Court of Appeal Justices Donald Rennie, Marc Nadon and André Scott rejected the appellant’s argument that medical marijuana is among the zero-rated drugs included in the Excise Tax Act, and held that Hedges was not a licensed producer under the Marihuana Medical Access Regulations (MMAR) nor were the BCCCS’s sales of marijuana to its members in accordance with the regulations.
(In April 2014, the MMAR were replaced by the Marihuana for Medical Purposes Regulations, or MMPR, which allow only licensed commercial producers to sell medical marijuana.)
Justice Miller said in his Tax Court decision that Parliament should have clearly stated as to whether dried marijuana sales are to be zero-rated, subject to GST, or zero-rated on the basis that this type of cannabis can only be obtained by a prescription — the absence of which has led to “understandable confusion in the industry.”
The Federal Court of Appeal agreed with his assessment.
Toronto tax lawyer David Sherman, who served as Hedges’s co-counsel, said that when the Liberal government presents its proposed marijuana legislation to Parliament, it should amend the Excise Tax Act to zero-rate medical marijuana in contrast to recreational pot, which would be subject to GST or HST.
B.C. lawyer Kirk Tousaw, who is involved in a constitutional court challenge to the MMPR, said that while the Federal Court of Appeal recognized in Hedges that it could not have been Parliament’s intent to exempt from taxation medical marijuana sold by dispensaries, the court’s ruling also affects the 27 Health Canada-licensed producers authorized to sell marijuana to people under the current regulations.
“They grow and sell cannabis lawfully, but even they don’t appear to be exempt from GST.”
Patients purchasing medical marijuana from licensed producers pay GST or HST and claim the tax as medical expenses.
But the Federal Court is soon expected to release a decision that could have an impact on marijuana dispensaries.
Tousaw is co-counsel to a group of plaintiffs who argued that the MMPR violate Charter section 7 by giving patients with medical conditions no choice but to purchase needed marijuana from producers at higher commercial prices, which some people cannot afford, and by not allowing them to grow their own cannabis, as they could under the MMAR.
In Allard v. Canada, [2014] FC 280, the Federal Court granted an interlocutory injunction that allowed people previously authorized to produce and possess marijuana exempt from the repeal of the MMAR until it reaches a final decision.
Osgoode Hall criminal law professor Alan Young said that if the court rules that the MMPR infringe on personal liberties, it could provide some immunity or protection to medical marijuana dispensaries.
“If the government’s program is found to be constitutionally deficient, dispensaries have justification to supply medicine to patients who have the right to choose the way they treat their medical condition,” said Young, who has acted for medical marijuana dispensaries that have run afoul of the law.
He explained that the MMPR’s primary constitutional flaw is that licensed producers sell cannabis at a price most patients, many of whom are on social assistance or disability, cannot afford given their daily dosages — which could amount to hundreds of dollars in expense per week.
“The current program is not subsidized under any health plan, and dispensaries are able to undercut the cost and provide marijuana at a much lower price,” Young said.
Tousaw, who represents a couple of dozen dispensaries in B.C., said that anyone operating them is violating the Controlled Drugs and Substances Act and “putting their own liberty at serious risk in order to provide increased quality of life to their clientele — and that’s a pretty noble mission.
“It’s not as if dispensaries have intentionally sought to be outside the regulatory scheme. They all have consistently sought to be participants in it and the federal government has frozen them out repeatedly, despite dispensaries having knowledge of the medicine and how best to put it in the hands of medical consumers.”
He hopes that when the federal Liberal government unveils its framework for legalizing marijuana, the regulations will allow dispensaries to distribute medical cannabis, and individuals will be able to grow marijuana for medical or recreational purposes.
“If one of the goals of moving toward a legalized system is to eliminate the black market, the government has to make it possible for the legal market to compete.”
Tousaw also hopes that former Toronto police chief Bill Blair, one of Justice Minister Jody Wilson-Raybould’s two parliamentary secretaries appointed to head Ottawa’s efforts to legalize marijuana, will include in his federal-provincial task force to establish a legislative framework, representatives from the dispensary community as well as growers.
“To have a successful transition from an underground industry to one that is lawful, it can’t just be the same old voices of government policy, health and law-enforcement folks who don’t know a tremendous amount about cannabis and only have a prohibition perspective,” he said.
In the meantime, marijuana dispensaries are illegal under federal law — although police are often choosing not to lay charges in such cities as Vancouver, which became the first Canadian municipality to regulate dispensaries last June and now plans to issue licenses to 14 cannabis shops by month’s end.
Still, Vancouver criminal defence lawyer Michael Shapray cautions would-be dispensary owners to tread carefully.
“There are only two ways to be involved in the marijuana business in Canada,” he explained.
“One is to be an industrial producer able to distribute cannabis by mail under the new medical marijuana regime [MMPR] or to be a grower under the old regime [MMAR] that’s still in place because of the ongoing litigation in Federal Court.”
Federal Justice Department spokeswoman Lyse Cantin confirmed in an email that, “dispensaries and other sellers of marijuana not licensed under the current law are illegal, but local authorities must be able to make their own decisions about local enforcement priorities.”
In light of Hedges, dispensaries must also collect and remit GST or HST on any marijuana they sell, Young added.
“I always advise them that the greater risks come from tax assessment, not law enforcement if dispensaries operate with some discretion in large urban centres,” he said.
“I don’t want to equate dispensaries with Al Capone and tax evasion, but the police will always take the easy regulatory route if they want to shut them down, rather than pursuing a difficult criminal prosecution.”
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