Application of the GST/HST to Payments Made Between Parties Within a Medical Practice Organization

From: Canada Revenue Agency

GST/HST Policy Statement P-238

Please note that the following Policy Statement, although correct at the time of issue, may not have been updated to reflect any subsequent legislative changes.

Date of Issue

November 7, 2000

Subject

APPLICATION OF THE GST/HST TO PAYMENTS MADE BETWEEN PARTIES WITHIN A MEDICAL PRACTICE ORGANIZATION

Legislative Reference(s)

Sections 1, 5, 7, 7.1 and 9 of Part II of Schedule V to the Excise Tax Act (the "ETA")

National Coding System File Number(s)

11865-1

Effective Date

January 1, 2001

Issue and Decision:

This policy clarifies the application of the GST/HST to payments made between parties within a medical practice organization with respect to the organization’s operating expenses. This statement replaces and supersedes paragraphs 25 to 33, entitled "Administrative Procedures", in GST Memorandum 300-4-2, Health Care Services.

This policy applies to medical practice organizations where "medical practitioners" and "practitioners" (hereinafter referred to as "practitioners"), as those terms are defined in section 1 of Part II of Schedule V to the ETA, are involved in a principal/locum or principal/associate relationship and are supplying exempt health care services. Where the payment is not in respect of a supply by the principal practitioner of the use of the facilities or of administrative services, the position of the Canada Customs and Revenue Agency (CCRA) is that a payment made by a locum or associate to a principal practitioner is with respect to an apportionment of the fee for a supply of health care services rendered to an individual. As such, the payment is outside the scope of the GST/HST legislation and is not subject to tax.

For the purposes of the ETA, a "medical practitioner" is a person who is entitled under the laws of a province to practice the profession of medicine or dentistry. Legislation in some provinces permits certain professional corporations to engage in the practice of medicine or dentistry, and medical practitioners may be employed by a professional corporation for the purpose of engaging in the practice of medicine or dentistry if certain criteria contained in the provincial legislation are met. Consequently, where a professional corporation is entitled under provincial laws to practice the profession of medicine or dentistry, that professional corporation will satisfy the definition of "medical practitioner" for the purposes of the ETA. Thus, the principles discussed in this policy statement apply to these professional corporations in the same manner as they apply to medical practitioners operating as sole proprietors.

The supply of specified health care services by practitioners when rendered to an individual is exempt pursuant to sections 5, 7, and 7.1 of Part II of Schedule V to the ETA. In addition, section 9 of this Part provides an exemption for a supply made by any person of a property or service where, and to the extent that, the consideration for the supply is reimbursed by a provincial health insurance plan.

The practitioners of a medical practice organization allocate the organization’s operating costs and revenues amongst themselves in a variety of ways. The method in which the amounts payable by each practitioner is determined and the manner in which the funds are handled by the practitioners varies in each organization. This document discusses the following medical practice organizations where such payments are common:

  1. sole proprietor using the services of a locum;
  2. principal practitioner using the services of one or more contracted associates;
  3. partnership;
  4. cost-sharing among practitioners under an agency arrangement; and
  5. practitioners using the services of a management company.

The term "clinic", while not descriptive of the legal relationship that exists within the medical practice organization, may involve any of the medical practice organizations listed above.

(1) Sole proprietorship using the services of a locum

In this situation, a practitioner (the "principal") contracts with another practitioner (the "locum") for a fixed period to provide treatment and related health care services to the principal’s patients when the principal is absent from the practice because of vacation, sickness, attendance at seminars, etc. The payment arrangements for the locum involve the locum and the principal sharing fees billed to a provincial health insurance plan.

Depending on the type of health care service rendered and whether or not the service is an insured service, practitioners may bill the provincial health insurance plan, a private health insurance company or other third party, or the individual directly in respect of the health care services they render to their patients. Provincial governments generally require that health insurance claims be submitted in the name of the individual practitioner who rendered the service, using that practitioner’s billing number for health insurance plan purposes. Therefore, in most situations, the locum (i.e., the practitioner who rendered the service) bills, for example, the provincial health insurance plan and, pursuant to an arrangement between the locum and the principal, the locum forwards a portion of the fees paid by the provincial health insurance plan to the principal. In other situations where provincial law permits the principal to bill the provincial health insurance plan in respect of the health care services provided by the locum, the principal remits a percentage of the billing to the locum pursuant to the arrangement between the parties.

Decision

Where the locum and the principal have entered into a bona fide arrangement to share fees irrespective of whether the locum or the principal is the initial recipient of the fees, the CCRA will not consider this to be a payment for the supply of administrative services made by the principal to the locum. The underlying characteristic of this arrangement is an apportionment of the fee for the health care service rendered to the individual between the parties. Thus, for purposes of the ETA, the amounts apportioned between the two parties are not subject to tax.

The application of the GST/HST differs where there is an agreement between the principal and the locum whereby the locum agrees to pay for use of the medical practice facilities. In this situation, the principal has made a taxable supply to the locum which may consist of an administrative service or real property. Although it is a question of fact whether the supply is an administrative service or real property, for ease of reference, this document will refer to the supply as an administrative service. Consequently, when the principal invoices the locum for a supply of an administrative service, the locum is paying consideration for a taxable supply. If the principal is registered or required to be registered for the GST/HST (i.e., not a small supplier), the GST/HST will apply to the consideration paid by the locum for the supply of the administrative service.

(2) Practice with contracted associates

The application of the GST/HST in situations involving arrangements with contracted associate practitioners ("associates") is the same as that described above with respect to locums. In this situation, one practitioner, the principal, contracts for the services of one or more associates.

As previously stated, depending on the type of health care service rendered and whether or not the service is an insured service, practitioners may bill a provincial health insurance plan, a private health insurance company or other third party, or the individual directly in respect of the health care services they render to their patients. Provincial governments generally require that health insurance claims be submitted in the name of the individual practitioner who rendered the service, using that practitioner’s billing number for health insurance plan purposes. The associate bills, for example, the provincial health insurance plan and, pursuant to an arrangement between the associate and the principal, the associate forwards a portion of the fee paid by the provincial health insurance plan to the principal. This portion may be based on a percentage of the associate’s billing or another amount.

Decision

As with locums, where the associate and the principal have entered into a bona fide arrangement to share fees, the CCRA will not consider the payment by the associate to be in respect of a supply of administrative services made by the principal. The underlying characteristic of the arrangement is an apportionment of the fee for the health care service rendered to the individual between the parties. Thus, for purposes of the ETA, the amounts apportioned between the two parties are not subject to tax.

The application of the GST/HST differs where there is an agreement between the principal and the associate whereby the associate agrees to pay for use of the facilities of the medical practice. As previously stated, in this situation, the principal has made a taxable supply to the associate which may consist of administrative services or real property. Although it is a question of fact whether the supply is administrative services or real property, for ease of reference, this document will refer to the supply as an administrative service. Consequently, when the principal invoices the associate for a supply of an administrative service, the associate is paying consideration to the principal for this taxable supply. If the principal is registered or required to be registered for the GST/HST, the GST/HST will apply to the consideration paid by the associate for the administrative service.

(3) Partnership

A partnership is the relationship between two or more persons carrying on business in common with a view to profit. Operation of the partnership and the rights and obligations of the partners are determined by provincial statute and/or the partnership agreement. The CCRA will consider the existence of a partnership using the same factors that are used in Interpretation Bulletin IT-90 -- What is a Partnership? for purposes of the Income Tax Act. Note that IT-90, paragraph 1, states that "[a] partnership is not a person, nor is it deemed to be within the meaning of the Act [the Income Tax Act]". Under the ETA, however, a partnership is included in the definition of "person" pursuant to subsection 123(1).

Pursuant to subsection 272.1(1) of the ETA, anything done by a partner in his or her capacity as a partner is deemed to have been done by the partnership and not to have been done by the partner. The activities of the partners and the partnership are one and the same and therefore, in this situation, the partnership is the only single entity.

Decision

The portion of billings paid by the partners to the medical partnership (as this portion is used for the partnership’s operational expenses) is not subject to the GST/HST because of the rules dealing with partnerships in the GST/HST legislation.

(4) Cost-sharing under an agency arrangement

In a cost-sharing arrangement, two or more practitioners operate their individual medical practices from a shared facility that may be owned or leased, and agree to share specific common operating costs, such as rent, utilities, the capital or lease costs for certain furniture, equipment, and medical instruments. The fact that the practitioners have an arrangement to share expenses indicates that they are acting together in some form of cost-sharing group with respect to these common expenses.

The cost-sharing arrangement would specify the liability of each practitioner with respect to the shared assets and expenses. The practitioners may also agree to jointly hire and remunerate employees. The cost-sharing arrangement would specify the liability of each practitioner with respect to employees, and it would be understood by the employees as to who their actual employers are.

The practitioners establish an agency relationship, whether written or implied, pursuant to which they delegate authority to one of the principals of the cost-sharing group to act as their agent with respect to the acquisition of goods and services common to the operation of each of the practitioners’ respective medical practices. The costs of these acquisitions are shared equally or on some proportionately agreed upon basis, while other costs incurred in the conduct of each of the respective practices are paid by the individual principals. The accounting methods for shared costs vary but the most common arrangements used involve:

a) One of the cost-sharing principals pays all of the operating expenses of the practices and is reimbursed by the other principals for their proportionate share of the expenses. This arrangement usually involves monthly interim payments made by the principals with an annual reconciliation of actual costs.

b) Each of the cost-sharing principals is responsible for paying certain of the shared expenses and adjustments are made between the principals monthly, annually, or as otherwise agreed when an accounting is made of the costs paid by each of the principals.

c) A common bank account is maintained for all of the cost-sharing principals for the purpose of paying the shared expenses used or consumed by their respective practices. Each of the cost-sharing principals deposits a predetermined amount to the bank account to make the necessary payments. At regular intervals, usually at the year end, an accounting is done of all of the payments through the common bank account and a statement is provided to each of the cost-sharing principals for the financial statements of their respective practices.

The tax status of the payments for the various supplies under a cost-sharing arrangement depends on whether there is a principal and agent relationship among the parties. Generally, only one of the practitioners will enter into an agreement for a particular supply and the vendor may not be aware of the underlying arrangement between the practitioners. The legal principle of agency recognizes that one party, an agent, is acting on behalf of the other party, a principal. The existence of an agency relationship is a question of fact. For more information on agency and guidelines to help determine whether an agency relationship exists within a cost-sharing collective, refer to Draft Policy P-182, Determining the Meaning of the Terms "Agent" and "Agency" as Used in Relevant Sections of the Excise Tax Act and Identifying Those Factors That May be Used to Determine the Likelihood of Agency.

Decision

Where, pursuant to a cost-sharing arrangement among a group of practitioners, a practitioner incurs an expense in the capacity of agent for the other parties to the arrangement, there is no supply in respect of this transaction by the agent to the other principals. Accordingly, the GST/HST does not apply to reimbursements of amounts paid by practitioners to another practitioner acting as agent on their behalf.

(5) Group medical practices using the services of a management company

Management companies have become involved in the operation of various types of group medical practices where several practitioners operate their respective medical practices from a shared facility, such as a medical clinic. A management company is a separate entity from the practitioners. It includes both incorporated and unincorporated entities. In some cases, the management company is owned by one or more of the practitioners or their families. Some incorporated companies own one or several medical clinics. These corporations enter into contracts with practitioners pursuant to which the practitioners will render health care services to individuals at the medical clinics owned by the corporation.

A management company is not a practitioner for the purposes of the ETA, nor does it supply health care services. Rather, the management company is hired or created by the practitioners to supply administrative services, such as the use of the facility, staff, overhead, equipment, capital assets, etc. Transactions between the management company and the practitioners constitute a commercial activity, and these transactions generally take place in one of two ways:

a) the management company supplies administrative services to the practitioners, or

b) where the practitioners have formed a cost-sharing group, the management company acts as agent of the practitioners with respect to the acquisition of specified goods and services on behalf of the practitioners.

(a) Management company supplies administrative services

In this situation, several practitioners operate their respective medical practices at a shared facility. The management company may own or lease the facility as well as certain equipment which it "resupplies" to the practitioners, and it may also provide reception, laboratory, and nursing services to the practitioners with its own employees. Each practitioner leases the use of the facility and certain equipment from the management company. In addition, each practitioner acquires the services of the management company to attend to the accounting, payroll, banking and other requirements of his or her practice.

For example, a practitioner hires a management company to pay the wages and salaries of the practitioner’s employees and make the required deductions for income tax purposes. The management company is providing a supply of a payroll service to the practitioner. The consideration for this supply is the amount charged for the provision of the service but not the reimbursement of the actual salaries and wages of the practitioner’s employees.

In exchange for the supply of administrative services, the practitioners make payments to the management company pursuant to a variety of arrangements. These arrangements between the management company and the practitioners are unrelated to the supply of health care services that the practitioners render to individuals, and may include the following:

a) each practitioner deposits a predetermined amount to the management company’s bank account for payment of his or her respective expenses;

b) the management company sends a statement to each practitioner reflecting that practitioner’s proportionate share of the expenses plus an administrative fee; or

c) the management company and the practitioners enter into an arrangement that provides for the management company to collect the fees payable to the practitioners by the health insurance plans or the individual, and then distribute a portion of these fees to the practitioners, withholding a specified amount as consideration for administrative services.

In the circumstance described in (c) above, although the management company collects the fees payable in respect of the practitioners’ services, this arrangement does not alter the nature of the transaction, i.e., the practitioners receive their fees from the health insurance plans or the individuals in respect of the health care services they have rendered to their patients. The portion of these fees that is not returned to them remains part of the practitioners’ revenues. The intervention of the management company or the owner of the medical clinic as the collector and distributor of these fees merely facilitates payment of these fees to the practitioners.

Decision

The management company is making a taxable supply of administrative services to the practitioners. These services include managing the operational requirements of the practitioners’ medical practices that, as discussed above, may consist of supplying the facility, overhead, medical equipment, and services, such as reception, laboratory, nursing, payroll, accounting, banking, and handling the collection and distribution of the practitioners’ billings. Supplies purchased by the practitioners from the management company, including services provided by the management company’s employees to the practitioners, are subject to the GST/HST. The GST/HST is collectible by the management company on the value of the consideration paid or payable by the practitioners for these supplies.

The value of consideration paid or payable by the practitioners includes the reimbursement of expenses the management company incurred otherwise than in the capacity as agent. In providing services to the practitioners, the management company incurs its own expenditures not as agent of the practitioners. These expenditures may include the lease or purchase of the facility and equipment, as well as overhead, office supplies, etc., and are thus inputs acquired or consumed by the management company to make supplies to the practitioners. In addition, when the management company, through its own employees, provides reception, laboratory, nursing, and other services to the practitioners, the salaries and wages of its employees are expenses of the management company to supply services to the practitioners. The reimbursements the management company receives from the practitioners for these expenses forms part of the consideration for the supply of administrative services.

However, when a management company supplies a payroll service to the practitioners, the GST/HST applies to the consideration for the supply of the payroll service but not to any reimbursements made to the management company for actual salaries and wages where the employees are employed by the practitioners. Note that it is a question of fact whether the practitioners or the management company are the actual employers.

(b) Management company acting as agent

A situation involving a management company acting as agent of a group of practitioners may exist where the practitioners have entered into a cost-sharing arrangement to share certain expenses. The cost-sharing arrangement between the practitioners would specify the liability of each practitioner with respect to the shared assets and expenses. The practitioners may hire a management company to act as their agent for the acquisition of specific goods and services common to the operation of their respective medical practices. The practitioners establish an agency relationship with the management company by way of an agreement, whether written or implied, pursuant to which they delegate authority to the management company to act as their agent for the acquisition of specific goods and services on their behalf (e.g., certain assets, equipment, utilities, etc.) which are stipulated in the agreement.

The management company will be considered and treated for GST/HST purposes as an agent based on fact and the principles of law. In an agency relationship, it should be clear that the principal has a degree of power over the actions of the agent, that the agent is acting as an extension of the principal and, therefore, would be under the principal’s general direction and control. Note that the existence of an agency relationship is a question of fact. Draft Policy P-182 provides guidelines to determine whether an agency relationship exists.

Not every action the management company performs will be in the capacity of agent since some of the management company’s activities will involve providing services to the practitioners. The agency agreement between the practitioners and the management company does not imply that the management company is acting as agent of the practitioners with respect to every acquisition. It is a question of fact whether an agent purchases a supply as agent of a principal or whether the supply is purchased by the agent in the course of its own business activities. The determination as to whether the management company acts as agent of the practitioners is made in respect of each transaction. For instance, the management company may be delegated authority by the practitioners to act as their agent for acquisitions of specified goods and services but it would not be acting as agent of the practitioners where, in its own role, the management company provides services directly to the practitioners.

If, for example, the practitioners’ cost-sharing arrangement provides for the joint hiring and remuneration of employees, the arrangement would specify the liability of each of the practitioners with respect to the employees. An example of a service that could be acquired by the management company as agent of the practitioners is the acquisition of a payroll service from another party to pay the wages and salaries of the practitioners’ employees. However, when the management company itself pays the wages and salaries of the practitioners’ employees on behalf of the practitioners, as previously noted, it is providing a payroll service directly to the practitioners, and is not acting as agent of the practitioners.

The management company issues statements to the practitioners who are members of the cost-sharing arrangement, indicating their share of the expenses and the amounts to be paid in respect of acquisitions the management company incurs as their agent. In addition, the management company charges the practitioners an administrative fee for acting as their agent, as well as a fee for other services the management company has provided.

Decision

When a management company incurs a specified expense in the capacity of agent for a group of practitioners, the GST/HST does not apply to the reimbursement made by practitioners to the management company for this expense. The management company is making a taxable supply to the practitioners of acting as their agent and the GST/HST does apply to the value of the consideration (i.e., the administrative fee) the management company charges the practitioners in respect of this supply.

When the management company provides a service to the practitioners, such as a payroll service described above, the provision of this service is not made in the capacity of agent; rather it is a taxable supply made by the management company to the practitioners and the GST/HST applies to the value of consideration payable for this supply. In providing the service, the management company is acting under a contract for services rather than under an agency agreement. Furthermore, when the management company incurs its own expenses not as agent of the practitioners, as previously noted, the reimbursements made by the practitioners for these expenses forms part of the consideration for the supply of services by the management company. The GST/HST applies on the consideration payable to the management company by the practitioners for the reimbursement of expenses the management company incurred otherwise than in its capacity as the practitioners’ agent.

Sample Ruling 1: Agency Relationship (one practitioner incurs all expenses)

Statement of Facts

  1. Practitioners A, B, and C are each sole proprietors operating their individual medical practices from a shared facility.
  2. The practitioners are involved in a cost-sharing arrangement whereby they are not carrying on business together with a view to profit, but are sharing expenses.
  3. The shared office expenses are rent, employee wages, utilities, as well as the capital and lease costs for certain furniture, equipment and medical instruments. All of the practitioners are involved in major expenditure decisions and staffing matters and all property is jointly owned. It is understood by the employees that they are working for all three practitioners.
  4. The practitioners enter into an agreement whereby Practitioner A will incur all of the office expenses as agent of the principals to the cost-sharing arrangement. The practitioners have discussed this arrangement informally and a written agency agreement does not exist between Practitioner A and the other practitioners.
  5. Practitioner A signs the lease for furniture and equipment and contracts for the required utilities. The suppliers are not specifically aware of the arrangement between the practitioners.
  6. Practitioner A issues statements to the other practitioners indicating their portion of office expenses and any amounts to be paid to Practitioner A, and charges the other practitioners an administrative fee for acting on their behalf.
  7. Each practitioner reports one-third of the expenses for income tax purposes.

Ruling Requested

The reimbursements by Practitioners B and C to Practitioner A for office expenses incurred on their behalf are not consideration for taxable supplies and GST/HST will not apply. The administrative fee charged by Practitioner A is not consideration for a taxable supply and GST/HST will not apply.

Ruling Given

Based on the facts set out above, we rule that the reimbursements by Practitioners B and C to Practitioner A for office expenses incurred as their agent are not consideration for a supply and the GST/HST will not apply to these reimbursements. Note that the existence of an agency relationship is a question of fact. Refer to Draft Policy P-182 to determine whether an agency relationship exists.

The administrative fee charged by Practitioner A for acting as agent is consideration for a taxable supply and is subject to the GST/HST where Practitioner A is registered or is required to be registered (i.e., is not a small supplier).

Sample Ruling 2: Agency Relationship (each practitioner incurs certain expenses)

Statement of Facts

  1. Practitioners A, B, and C are each sole proprietors operating their individual medical practices from a shared facility.
  2. The practitioners are involved in a cost-sharing arrangement whereby they are not carrying on business together with a view to profit, but are sharing expenses.
  3. The shared office expenses are rent and overhead, as well as the capital and lease costs for certain furniture and medical equipment. All of the practitioners are involved in major expenditure decisions.
  4. The practitioners enter into an agreement where each will pay certain of the shared expenses: Practitioner A is responsible for the lease of the facility; Practitioner B is responsible for the overhead expenses as well as office furniture; and Practitioner C is responsible for the acquisition of medical equipment. This is an informal arrangement and a written agency agreement does not exist between the practitioners.
  5. The suppliers are not specifically aware of the arrangement between the practitioners.
  6. At the end of each year, the practitioners reconcile these expenses between each other so that the costs are equally shared.
  7. Each practitioner reports one-third of the expenses for income tax purposes.

Ruling Requested

The reimbursements made between Practitioners A, B and C to reconcile the shared operating expenses are not consideration for taxable supplies and GST/HST will not apply.

Ruling Given

Based on the facts set out above, we rule that the reimbursements made between Practitioners A, B and C to reconcile the costs of the shared operating expenses are not consideration for a supply and the GST/HST will not apply to these reimbursements.

In incurring these expenses under the cost-sharing arrangement, the relationship amongst the practitioners is one of agency. Note that the existence of an agency relationship is a question of fact. Refer to Draft Policy P-182 to determine whether an agency relationship exists.

Sample Ruling 3: Agency Relationship (joint bank account for all practice expenses)

Statement of Facts

  1. Practitioners A, B, and C are each sole proprietors operating their individual medical practices from a shared facility.
  2. The practitioners are involved in a cost-sharing arrangement whereby they are not carrying on business together with a view to profit, but are sharing expenses.
  3. The common office expenses that are being shared are rent, employee wages, and overhead expenses, as well as the capital and lease costs for certain furniture, equipment and medical instruments. All of the practitioners are involved in major expenditure decisions and staffing matters. It is understood by the employees that their actual employers are all three practitioners.
  4. The practitioners opened a joint bank account for the purpose of paying common expenses. Pursuant to their cost-sharing arrangement, each practitioner deposits $2,000 at the end of every month into the joint bank account to cover the estimated one-third share of the total operational costs. The practitioners agree that Practitioner A has sole signing authority on the back account, but will provide a reporting of deposits and operational costs every quarter. The practitioners have discussed this arrangement informally and a written agency agreement does not exist between them.
  5. The suppliers are not specifically aware of the arrangement between the practitioners.
  6. Each practitioner reports one-third of the expenses for income tax purposes.

Ruling Requested

The monthly $2,000 deposits made by both Practitioner B and Practitioner C into the joint bank account to cover their respective one-third share of the common operating expenses are not consideration for a taxable supply made by Practitioner A, and GST/HST will not apply to these amounts.

Ruling Given

Based on the facts set out above, we rule that the monthly $2,000 deposits made by both Practitioner B and Practitioner C to cover their respective one-third share of the common operating expenses is not consideration for a supply made by Practitioner A, and the GST/HST will not apply to these amounts.

In paying the common expenses from the joint bank account under the cost-sharing arrangement, the relationship of Practitioner A to Practitioners B and C is one of agency. Note that the existence of an agency relationship is a question of fact. Refer to Draft Policy P-182 to determine whether an agency relationship exists.

Sample Ruling 4: Partnership

Statement of Facts

  1. A partnership is created to provide medical services. The partners, A and B, are practitioners.
  2. The partnership incurs all of the expenses of the medical practice.
  3. Partners A and B individually bill the provincial health insurance plan. They deposit their payments from the provincial plan in the partnership bank account and regularly receive payments in the form of draws in respect of their share in the profits of the partnership.

Ruling Requested

The payments to the partnership made by the partners to cover the partnership’s operational expenses and the draws received by the partners from the partnership are not consideration for taxable supplies and GST/HST will not apply to these amounts.

Ruling Given

Based on the facts set out above, we rule that payments made by the partners to the medical partnership related to the operation of the medical practice organization and the draws received by the partners from the partnership are not consideration for taxable supplies and the GST/HST will not apply to these amounts.

Sample Ruling 5: Services of a Locum

Statement of Facts

  1. Practitioner A is a sole proprietor operating a medical practice. Practitioner A uses the services of Practitioner B (the locum) to provide treatment and related health care services to Practitioner A’s patients. Practitioner A uses the services of the locum during periods of vacation, attendance at professional development seminars, illness and maternity leave.
  2. Billings for patient services performed by the locum are billed to the provincial health insurance plan under the locum’s billing number. The provincial plan compensates the locum directly and the locum remits 30% of these fees to Practitioner A.
  3. There is no agreement between the two practitioners providing for the locum to pay Practitioner A for the use of the medical practice.

Ruling Requested

The payment made by the locum to Practitioner A is not consideration for a supply and GST/HST will not apply to this payment.

Ruling Given

Based on the facts set out above, we rule that the payment made by the locum to Practitioner A is not consideration for a supply and the GST/HST does not apply to this payment.

Sample Ruling 6: Services of a Locum

Statement of Facts

  1. Practitioner A is a sole proprietor operating a medical practice. Practitioner A uses the services of Practitioner B (the "locum") to provide treatment and related health care services to Practitioner A’s patients. Practitioner A uses the services of the locum during periods of vacation, attendance at professional development seminars, illness and maternity leave.
  2. The province permits Practitioner A to bill the provincial health insurance plan for patient services performed by the locum under Practitioner A’s own billing number. In this situation, the provincial plan pays Practitioner A for services performed by the locum.
  3. Practitioner A and the locum have verbally agreed that Practitioner A will remit to the locum 60% of the billings to the provincial plan that relate to the health care services rendered by the locum.
  4. There is no agreement between the two practitioners providing for the locum to pay Practitioner A for the use of the medical practice.

Ruling Requested

The portion of the amount Practitioner A receives from the provincial plan that Practitioner A does not remit to the locum (i.e., 40% of the billings to the provincial plan) is not consideration for a supply and accordingly, no GST/HST applies to the amount not remitted by Practitioner A to the locum.

Ruling Given

Based on the facts set out above, we rule that the portion of the amount Practitioner A receives from the provincial plan that Practitioner A does not remit to the locum
(i.e., 40% of the billings) is not consideration for a supply and GST/HST does not apply to this amount.

Sample Ruling 7: Medical Clinic Contracting with Associates

Statement of Facts

  1. Practitioner A is a sole proprietor operating a medical practice under the name
    Clinic XYZ. The sole proprietor owns the practice and all related assets of the practice.
  2. Practitioner A contracts with independent contractor associates whereby the associates will render health care services to individuals at Clinic XYZ and agree to pay
    Clinic XYZ for the use of the facility, medical equipment, and supplies of administrative services.
  3. Clinic XYZ does not invoice the associates specifically for the use of the clinic, medical equipment, or administrative services. Rather, the associates and Practitioner A enter into an arrangement whereby the associates will assign to Clinic XYZ the fees payable to them by the provincial health insurance plan. Pursuant to this arrangement,
    Clinic XYZ will forward the associates’ billings to the provincial health insurance plan for the health care services the associates rendered using their billing numbers for this purpose. Clinic XYZ will collect these fees, remit 60% of the fees to the associates and withhold the remaining 40% in exchange for providing the use of the clinic, medical supplies, and administrative services.

Ruling Requested

The 40% of the associates’ fees that Clinic XYZ withholds is not consideration for a taxable supply and accordingly, no GST/HST applies to this portion of the associates’ fees not remitted to the associates.

Ruling Given

Based on the facts set out above, we rule that the 40% portion of the associates’ fees that Clinic XYZ does not remit to the associates is consideration paid by the associates for a taxable supply consisting of the use of the facility and medical equipment and administrative services. This supply by Clinic XYZ is a commercial activity and if Clinic XYZ is registered or is required to be registered (i.e., is not a small supplier), the GST/HST applies to the consideration paid by the associates for this supply (i.e., the portion of the associates’ fees withheld by Clinic XYZ).

While Clinic XYZ collected the fees payable by the provincial health insurance plan, it did not provide health care services to patients. Clinic XYZ is collecting the amount from the provincial health insurance plan on behalf of the associates. The associates and Practitioner A have an agreement that the associates will pay Clinic XYZ for the use of its facilities. Therefore, the amount of the associates’ fees withheld by Clinic XYZ is not consideration for a supply of health care services; rather the amount withheld is consideration for a taxable supply made by Clinic XYZ to the associates.

Sample Ruling 8: Supplies Made by a Management Corporation

Statement of Facts

  1. Practitioner A is sole proprietor operating a medical practice.
  2. Practitioner A creates a management corporation to manage the operational requirements of the medical practice. The corporation is a separate entity.
  3. The management corporation leases the practice assets, facilities and equipment, employs all the staff, and attends to the administrative, accounting and banking needs of the medical practice. The corporation does not incur these expenses as agent of Practitioner A.
  4. Practitioner A bills a health insurance plan for health care services rendered to individuals and is accordingly reimbursed by the plan.
  5. Each month, Practitioner A pays an amount equal to 30% of the health insurance plan billings to the corporation for its supplies of management services.

Ruling Requested

Practitioner A’s payment of 30% of the health insurance plan billings to the management corporation is not consideration for a taxable supply and GST/HST will not apply to this payment.

Ruling Given

Based on the facts set out above, we rule that the payment equal to 30% of the health insurance plan billings made by Practitioner A to the management corporation is consideration for a supply of management services. The supply of management services is a commercial activity and if the corporation is registered or is required to be registered (i.e., is not a small supplier), the GST/HST will be applicable on the consideration payable by Practitioner A for this supply.

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