Please note that the following document, although correct at the time of issue, may not represent the current position of the Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence.
XXXXX
XXXXX
XXXXX
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
Case Number: 103873
Business Number: XXXXX
Attention: XXXXX XXXXX
April 27, 2010
Dear XXXXX:
Subject:
GST/HST RULING
XXXXX
Thank you for your XXXXX dated XXXXX, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the operations of the XXXXX ("Clinic") located in XXXXX. We apologize for the delay in this response.
XXXXX.
XXXXX.
The Government of Canada and the Government of British Columbia have signed a Comprehensive Integrated Tax Coordination Agreement for the implementation of HST in British Columbia. The HST is proposed to come into effect in British Columbia on July 1, 2010, at a rate of 12%, consisting of a 5% federal part (equivalent to the existing GST) and a 7% provincial part.
Legislation required to implement the HST in British Columbia has received Royal Assent by the Parliament of Canada. Required provincial legislation has been introduced but is still under consideration by the Legislative Assembly of British Columbia. However, many of the rules which would apply to transactions will be contained in regulations made under the Excise Tax Act (ETA). Although the Government of British Columbia has announced details of the rules which may eventually apply, the required regulations have not yet been made by the Government of Canada.
All legislative references are to the ETA unless otherwise specified.
Statement of Facts
We understand that:
1. Pursuant to Part 4 of the Health Professions Act [RSBC 1996] Chapter 183, the British Columbia College of Chiropractors (College) issued a Certificate Respecting Corporate Name to XXXXX. XXXXX is the President of XXXXX. XXXXX owns and operates the Clinic.
2. XXXXX is registered for GST/HST purposes.
3. The chiropractors, naturopaths, massage therapists, and other health care providers working at the Clinic are self-employed.
4. XXXXX bills for the services rendered by chiropractors, naturopaths, massage therapists, and other health care providers to patients of the Clinic. XXXXX uses a statement system for billing purposes, rather than invoices. For billing purposes, the XXXXX identifies the name of the health care provider (e.g., chiropractor) and their Registration Number. (In the Province of British Columbia, practitioners of chiropractic, for example, must register with College.) The XXXXX also identifies the date and description of the service rendered, a fee code, the opening balance, total fees, total payments and balance owing by the patient.
5. XXXXX charges patients of the Clinic the GST on all services provided at the Clinic, other than chiropractic services.
6. XXXXX pays for all administrative, operating, and overhead costs of the Clinic. The chiropractors, naturopaths, massage therapists, and other health care providers have agreed that XXXXX can withhold a certain percentage of their total monthly billings. The chiropractors, naturopaths, massage therapists, and other health care providers are not required to pay a minimum amount, nor is there any annual or periodic reconciliation of costs.
7. XXXXX pays each naturopath, massage therapist, and other health care provider, a specified amount of XXXXX% of their total monthly billings generated, as recorded in a XXXXX (Report), for the services they render to patients of the Clinic. The Report refers to "Fee Sharing".
8. XXXXX pays each chiropractor a specified amount of his or her total monthly billings generated as recorded in a Report, for chiropractic services rendered to patients of the Clinic. The specified amount paid by XXXXX to each chiropractor is as follows:
XXXXX% of the first $XXXXX of billings;
XXXXX% of the billings from $XXXXX up to $XXXXX;
XXXXX% of the billings over $XXXXX.
9. In the sample Report submitted for review, XXXXX.
10. XXXXX and the chiropractors, naturopaths, massage therapists, and other health care providers have not entered into a cost-sharing agreement nor is there an agency agreement in place between them. A written agreement does not exist with respect to the amounts paid or withheld by XXXXX from them, as described in facts seven (7) and eight (8) above.
11. XXXXX and the chiropractors, naturopaths, massage therapists, and other health care providers do not have a joint bank account.
12. The Clinic has the option to substitute a chiropractor working at the Clinic if the chiropractor is not available. When unavailable, a chiropractor can arrange to have another chiropractor take his or her place to provide chiropractic services to patients of the Clinic.
13. The chiropractors working at the Clinic are subcontractors and are free to choose their own hours of work. They provide their own libraries at the Clinic. The Clinic provides other equipment as it is too big to transport regularly.
14. The chiropractors may have their own patients separate from those of the Clinic.
15. Patients book appointments with chiropractors by calling the Clinic. Records of chiropractic patients are held by the Clinic.
16. XXXXX.
17. XXXXX.
18. XXXXX.
Ruling Requested
You would like to know whether the percentage of the total monthly billings withheld by XXXXX from each chiropractor working at the Clinic, as described in fact eight (8) above is consideration for a taxable supply that is subject to the GST.
Ruling Given
Based on the facts set out above, we rule that the percentage of the total monthly billings withheld by XXXXX from each chiropractor working at the Clinic, as described in fact eight (8) above is consideration for a taxable supply that is subject to the GST.
As XXXXX is a GST/HST registrant, pursuant to subsection 221(1) it is required to collect the GST on the value of the consideration for this supply (i.e., the percentage of the total monthly billings withheld by it from each chiropractor). As the recipient of the supply, each chiropractor is required to pay the GST on the value of the consideration for the supply pursuant to subsection 165(1).
XXXXX.
This ruling is subject to the qualifications in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service. We are bound by this ruling provided that none of the above issues are currently under audit, objection, or appeal, that no future changes to the ETA, regulations or our interpretative policy affect its validity, and all relevant facts and transactions have been fully disclosed.
Explanation
GST/HST Policy Statement P-238 entitled Application of the GST/HST to Payments Made Between Parties Within a Medical Practice Organization (P-238) clarifies the application of the GST/HST to payments made between parties within a medical practice organization with respect to the organization's expenses. This policy applies to a "medical practitioner" and "practitioner", as defined in section 1 of Part II of Schedule V (hereinafter referred to as "practitioners") and explains how the GST/HST applies to such payments using five different examples of the types of medical practice organizations. The electronic version of P-238 can be found on the CRA's Web site at http://www.cra-arc.gc.ca/E/pub/gl/p-238/README.html.
As described in P-238, an amount withheld from or invoiced to a practitioner by the principal practitioner for administrative services and/or facilities, whether the arrangement is that of: (1) a medical practice organization of a sole proprietor practitioner using the services of a locum, (2) a medical practice organization with contracted associate practitioners, or (5) a medical practice organization of practitioners using the services of a management company, is consideration for a taxable supply made by the principal practitioner that is subject to the GST/HST. The only exception to this is:
• where a principal practitioner enters into a bona fide arrangement to share fees with a locum (i.e., apportion fees between the principal practitioner and the locum for health care services rendered to an individual), as explained in the preamble of P-238 and described under one (1) therein;
• where the medical practice organization is a partnership, as described under three (3); or
• where the medical practice organization involves cost-sharing under an agency arrangement, as described under four (4). In these arrangements, the GST may not apply to amounts paid by one practitioner to another practitioner.You advised that neither a cost-sharing arrangement nor an agency relationship exists between XXXXX and each of the chiropractors working at the Clinic. In addition, the relationship between XXXXX and each of the chiropractors is not that of a partnership. Therefore, the position taken by the CRA, as described under three (3) and four (4) of P-238 do not apply.
Further, the relationship between XXXXX and each of the self-employed chiropractors is not that of a principle/locum, as described under one (1) of P-238. A locum refers to a practitioner (i.e., a locum practitioner) who assumes the clinical duties or steps into the shoes of another practitioner (i.e., principal practitioner) on a temporary basis. A locum practitioner enables the principal practitioner to take time off from his/her practice for vacation, illness, etc. In these situations, the locum practitioner may bill the provincial health insurance plan for a health care service rendered to an individual (Footnote 1) using his/her own billing number and then forward a portion of the billing received from the plan to the principal practitioner. Alternatively, the principal practitioner may bill the provincial health insurance plan using his/her own billing number and then provide a portion of the billing received from the plan to the locum practitioner. Where the locum practitioner and principal practitioner have entered into a bona fide arrangement to share fees and the principal practitioner makes available the administrative services and/or facilities at his/her own costs, the apportionment of the billing fees received from a plan between the locum practitioner and the principal practitioner for a health care service rendered to an individual is outside of the scope of the ETA. This is because the practitioner that receives the fee from a plan would account for this amount for GST/HST purposes and the share given to the other practitioner would simply be a transfer of money and not consideration for a taxable supply made by the principal practitioner to the locum practitioner.
However, where a locum practitioner agrees to pay for a portion of the costs of the administrative services and/or facilities of the principal practitioner, one (1) of P-238 provides that the apportionment of the billing fee is consideration for a taxable supply made by the principal practitioner to the locum practitioner.
These same principles apply to an arrangement involving a practitioner/associate. In the case at hand, XXXXX owns the Clinic and pays for all of the costs related to its operation.
XXXXX.
Although the Agreement entered into between XXXXX and XXXXX does not specifically state that the withholding of monthly billings is for the provision of administrative services and facilities, it is our view that the amounts withheld are consideration for a taxable supply of these and other benefits described therein. By signing the Agreement, XXXXX agreed to its terms and conditions which included the withholding of monthly billings and the receipt of administrative services, use of facilities and other benefits as an associate chiropractor.
XXXXX.
P-238 is intended to illustrate the basic concepts regarding the application of the GST/HST to payments made between parties within a medical practice organization and is not meant to be exhaustive. It provide examples of situations where the facts respecting a medical practice organization demonstrate that a supply exists and consideration is payable for that supply. Unless the supply is an exempt supply listed in Schedule V or a zero-rated supply listed in Schedule VI, the GST/HST will apply.
Based upon the facts presented and the application of P-238, it is our view that the percentage of the total monthly billings withheld XXXXX from each self-employed chiropractor in accordance with the terms and conditions described in the Agreement, whether agreed to verbally or in writing, constitutes consideration for a taxable supply. As the percentage of total monthly billings withheld by XXXXX are consideration for a taxable supply, as a GST/HST registrant, it is required to collect the GST from each self-employed chiropractor working at the Clinic in respect of this supply.
Other comments
XXXXX contracts out for the provision of chiropractic services to patients of the Clinic. XXXXX is a separate legal entity distinct from each of the chiropractors, who are self-employed, subcontractors. (Note: On the basis of the information provided, we assume that an employee/employer relationship does not exist between the subcontractors and XXXXX for purposes of the Income Tax Act.)
Generally, where a person (i.e., a contractor) has an agreement with an individual to supply a service and the contractor then enters into a service contract with another person (i.e., subcontractor) to provide that service, we consider that two supplies have been made. The first is the supply of a service made by the contractor to the individual, and the second is the supply of the service made by the subcontractor to the contractor. This second supply made by the subcontractor to the contractor is viewed as an input to the first supply made by the contractor to the individual.
In the case at hand, patients book appointments with a chiropractor through the Clinic and it is the Clinic that maintains patient records. Further, the example XXXXX submitted for review indicates that the chiropractic services rendered to patients of the Clinic by a chiropractor are XXXXX the Clinic for consideration equal to the amount billed to the clients by the Clinic. In addition, XXXXX.
This information, together with the fact that XXXXX has contracted with chiropractors as subcontractors to provide chiropractic services to its patients, indicates to us that it is XXXXX that is making the supply of chiropractic services to patients of the Clinic, and not the chiropractors working at the Clinic.
You also advised that XXXXX has not been collecting GST on chiropractic services rendered by chiropractors to patients of the Clinic.
Although you have not asked for a GST/HST ruling in this regard, we have taken the liberty of clarifying the application of the GST/HST to chiropractic services. In that respect, we offer the following:
Generally, all supplies made in Canada are taxable unless specifically exempt under Schedule V.
Supplies made before February 26, 2008
Prior to its amendment which applies to supplies made after February 26, 2008, section 7 of Part II of Schedule V read as follows:
"A supply of any of the following services when rendered to an individual, where the supply is made by a practitioner of the service:
(a) optometric services;
(b) chiropractic services;
(c) physiotherapy services;
(d) chiropodic services;
(e) podiatric services;
(f) osteopathic services;
(g) audiological services;
(h) speech-language pathology services;
(i) occupational therapy services;
(j) psychological services; and
(k) midwifery services."
For purposes of this provision, section 1 of Part II of Schedule V defines "practitioner" as follows:
"practitioner", in respect of a supply of optometric, chiropractic, physiotherapy, chiropodic, podiatric, osteopathic, audiological, speech-language pathology, occupational therapy, psychological, midwifery or dietetic services, means a person who
(a) practises the profession of optometry, chiropractic, physiotherapy, chiropody, podiatry, osteopathy, audiology, speech-language pathology, occupational therapy, psychology, midwifery or dietetics, as the case may be,
(b) where the person is required to be licensed or otherwise certified to practise the profession in the province in which the service is supplied, is so licensed or certified, and
(c) where the person is not required to be licensed or otherwise certified to practise the profession in that province, has the qualifications equivalent to those necessary to be so licensed or otherwise certified in another province."
In order for a supply of a one of the services described under paragraphs (a) to (k) of section 7 to be exempt, it had to be made by a practitioner (i.e., the practitioner had to be the supplier of the service).
For example, where a corporation (i.e., a contractor) entered into an agreement to provide a chiropractic service to an individual and then contracted out with a chiropractor (i.e., a subcontractor) to provide that service, the chiropractic service supplied by the corporation to the individual was generally taxable. The chiropractic service acquired by the corporation from the chiropractor would retain its exempt status. This was because the chiropractor rendered a chiropractic service to an individual and the exempting requirements set out in section 7 were met. The fact that the corporation paid an amount as consideration for the supply to the chiropractor did not change the nature of the supply made by the chiropractor or the tax status of the supply. Although the corporation would have acquired the supply without the payment of the GST/HST in this situation, it would generally have been required to charge the GST/HST when it made the supply to an individual because, prior to the amendment made to section 7 of Part II of Schedule V, no exempting provision within Schedule V applied to this supply when made by a corporation.
The one exception to this was where a professional corporation held a valid certificate of authorization or a permit authorized under provincial law to carry on the business of practicing the profession described in section 7 of Part II of Schedule V (e.g., chiropractic). In this case, the professional corporation holding such a certificate would fall within the meaning of "practitioner" as defined in section 1 of Part II of Schedule V and any supplies of the services described in section 7 that it made were exempt.
Supplies made after February 26, 2008
Further to an amendment which applies to supplies made after February 26, 2008, section 7 of Part II of Schedule V reads as follows:
"A supply of any of the following service if the service is rendered to an individual by a practitioner of the service..."
Because of the amendment made to section 7, a practitioner no longer has to make the supply in order for it to be exempt. Using the example cited earlier, the supply of a chiropractic service by the corporation to the individual would be exempt provided the consideration payable is for the supply of a service rendered to the individual by the practitioner.
Summary
To summarize, the supply made by XXXXX of chiropractic services rendered to patients of the Clinic is exempt under section 7 of Part II of Schedule V both prior to and following its amendment. This is because XXXXX falls within the definition of "practitioner" in section 1 of Part II of Schedule V (i.e., it is a professional health corporation that holds a valid certificate of authorization to practise a profession listed under section 7 of Part II of Schedule V issued under provincial legislation governing a health profession).
Since the supply of chiropractic services rendered to an individual was and continues to remain exempt under section 7, the monthly compensation paid by XXXXX to each self-employed chiropractor working at the Clinic, as described in fact eight (8) above, is not subject to GST/HST.
However, the percentage of the total monthly billings withheld by XXXXX from each self-employed chiropractor working at the Clinic is consideration for a taxable supply of administrative services, facilities and other benefits that is subject to the GST/HST.
We appreciate the concerns raised by XXXXX and XXXXX and regret that a more favourable response could not be provided. We also acknowledge their assertion that there may be an inconsistency in the application of the GST/HST in similar arrangements in other medical practice organizations. To that end, the CRA promotes compliance under the ETA by encouraging clients to come forward in order to comply with their legal obligations.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-954-4395. Should you have additional questions on the interpretation and application of GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.
Yours truly,
Lynn Fournier Renner
Municipalities and Health Care Services Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate
ENDNOTES
1 Note: Section 9 of Part II of Schedule V exempts any supply of property or services to the extent that the consideration for that supply is payable ore reimbursable under a provincial health insurance plan.
UNCLASSIFIED
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