In Canada, the purchase of human sperm and eggs is currently illegal under the Assisted Human Reproduction Act. Yet there are many commercial transactions involving sperm and eggs across the border. Indeed, importers such as Can-Am Cryoservices run a thriving business importing sperm and eggs from gamete banks outside Canada, such as Fairfax Egg Bank in the USA.
Many reports indicate that Canadians are purchasing foreign sperm and eggs from importers and shipping them directly to fertility clinics across Canada. Although there is some debate about whether the AHRA applies to a transaction that occurs in whole or in part outside of Canada, the tax treatment of sperm and eggs that are imported into Canada is clear. The taxation rules are, however, surprising: eggs are subject to tax, but sperm is not.
Sperm and eggs are taxed by virtue of the Excise Tax Act (ETA). The ETA is the law that requires business to collect the goods and services tax on most goods and services that are purchased by consumers in Canada. The goods and services tax applies to goods that are consumed in Canada, including goods that are imported into the country. Businesses are responsible for collecting this consumption tax from consumers and remitting the tax to the government, usually via the Canada Revenue Agency.
Sperm and eggs are subject to this tax because they qualify as a 'goods' under the ETA. The definition of goods includes the requirement that there be some form of commercial market for the item or service. Both sperm and eggs fall within this definition as there is clearly a commercial market for gametes in Canada. As discussed above, there is considerable evidence that sperm and eggs are being imported by third parties and sold to intended parents for high prices. As a result, sperm and eggs are subject to the goods and services tax. Yet, they are taxed differently under the act: sperm is taxed at zero percent, while eggs are taxed at the standard rate of five percent.
Why are sperm and eggs taxed differently in Canada? The ETA applies to a very broad range of goods and services consumed by Canadians. But there are some exceptions, which seek to promote certain benefits or to provide certain incentives to Canadians. One category of exemptions under the ETA applies a tax rate of zero percent to certain supplies.
The current list of 'zero-rated' goods and services include basic groceries, such as milk, bread and vegetables, prescription drugs and certain medical devices such as hearing aids. Sperm is also listed as a zero-rated supply. Eggs are not. Because sperm is zero-rated, there is no need to collect and remit the goods and services tax.
In my view, the taxation of sperm and eggs gives rise to two concerns. First, it is unclear why sperm and eggs are treated differently. Perhaps it is because the importation of frozen eggs is relatively new. Until 2012, banking of reproductive material was limited primarily to sperm and embryos. Since egg freezing was declared to no longer experimental by the American Society of Reproductive Medicine in 2013, the market for egg banking and the sale of frozen eggs has continued to increase every year. It is possible that because egg importation is new, the discrepancy was not noticed by the tax authorities.
Second, the tax treatment of sperm and eggs appears to be inconsistent with the Assisted Human Reproduction Act and the prohibition on the purchase of gametes. The principle underlying the prohibition in the act is non-commodification – sperm and eggs should not be assigned any commercial value. And yet the provisions of the ETA appear to acknowledge that sperm and ova do have commercial value, which under certain circumstances, should be taxed.
In my view, the differential treatment of sperm and eggs needs to be resolved – a consistent approach must be adopted. The federal government is in the midst of making regulations under the Assisted Human Reproduction Act and as such this is an opportune moment for legislative reform.