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Unlicensed medical marijuana sellers must still pay tax, appeal court rules

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Canadians selling medical marijuana outside the licensed mail-order system must still watch out for the taxman, according to a Federal Court of Appeal ruling that reasserts Ottawa’s right to collect sales taxes on any and all pot that is sold.

In a unanimous decision released Monday, judges dismissed an appeal by Gabriola Island grower Gerry Hedges to stop the clawback of almost $15,000 in GST for marijuana he sold over several years to the Vancouver-based B.C. Compassion Club Society, Canada’s oldest dispensary.

Alistair Campbell, Mr. Hedges’s tax lawyer, said the case centred around whether marijuana should be treated like a prescription drug. Mr. Campbell argued in court that cannabis should be exempt from federal sales tax because members of the dispensary must go through a process akin to getting a prescription, unlike over-the-counter drugs that are subject to GST, such as extra-strength Tylenol.

The judges ruled that only drugs that are sold legally can be exempted from GST. However, they also agreed with previous rulings that legislation surrounding the taxation of medical marijuana has led to “uncertainty and confusion” and “needs work.”

Under the current medical-marijuana framework, patients buying pot from Health Canada’s mail-order system must pay HST or GST on these products and then claim these levies as medical expenses. Some high-profile owners of illegal pot dispensaries have said they charge GST on all sales and remit those funds to the government, but it is unknown the extent to which this is common practice in the sector.

“Unless there’s legislative change, what it means is that end users of marijuana for medical purposes will be paying GST,” Mr. Campbell said. “The question for Parliament and public policy [experts] is whether that is a proper approach to taxing the medication in view of the evolution of the law in this field.”

Mr. Campbell said the Department of Finance could easily exempt all medical marijuana from sales taxes to make it more affordable for patients, adding “the GST Act is replete with those types of distinctions.” Staff with the department and the CRA were unable to provide comment on the ruling Tuesday.

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