17 October 2003 External T.I. 2003-0032735 - PROFESSIONAL CORPORATION

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

Principal Issues: Whether income from medical practice could be reported by professional corporation, where the corporation enters into contracts with self-employed physicians, and other professional corporations, who are not necessarily shareholders of the professional corporation.

Position: Question of Fact

Reasons: Where there is no legal preclusion against the professional corporation carrying out the business of providing the medical services, then the income should be reported by the person carrying on the business.

2003-003273
XXXXXXXXXX Wayne Antle, CGA
(613) 957-2102
October 17, 2003

Dear XXXXXXXXXX:

Re: Income Earned through a Professional Corporation

This is further to your letter of July 29, 2003, concerning whether income earned by physicians who transfer their fees to a professional corporation could be reported by the corporation instead of the physicians.

In your letter, you present the following hypothetical situation:

A group of physicians currently operating their medical practice through a partnership will transfer the medical practice to a professional corporation (the "incorporated practice"). The incorporated practice will enter into valid contracts with individual physicians to provide professional medical services to the incorporated practice, as either employees of the incorporated practice or as independent contractors. The incorporated practice may also contract with other physicians, who operate through their own professional corporations, for the provision of medical services. The individuals or contracted professional corporations may not necessarily be shareholders of the incorporated practice The activities of the incorporated practice and its relationship to its employees, independent contractors, and clients are similar to those ordinarily associated with a corporation carrying on a business. This is evidenced by the fact that the activities of the incorporated practice include all those listed in paragraph 1 of Interpretation Bulletin IT-189R2 Corporations Used by Practising Members of Professions, except that the incorporated practice not only enters into agreements with employees, but also contracts with self-employed doctors and other incorporated practices.

As noted in your letter, we previously considered the issue of whether doctors who incorporate and offer medical services through their professional corporations could report the income through their corporations. In our response (File No. 2003-0000335), we stated that a professional corporation could report the income from the provision of medical services notwithstanding the fact that the Ontario Health Insurance Plan ("OHIP") only accepts billings from individual physicians, where:

? the doctor has entered into a valid written agreement with the corporation, which provides that the doctor will perform all of the medical services as an employee of the corporation and the agreement stipulates that the corporation will be entitled to, and will receive, all revenues from the doctor's billings in respect of those medical services,
? the corporation is carrying on the business of the medical practice,
? the laws of Ontario and the regulatory body governing the medical profession in Ontario allow the professional medical corporation to practice medicine in Ontario, and
? there are no legal prohibitions (either contractual or legislative) against the doctor assigning or transferring the revenues from billings for medical services to the corporation.

The hypothetical scenario presented in your letter differs from the one outlined above, in that the physicians transferring their fees to the incorporated practice may not necessarily be shareholders, or employees of the incorporated practice. You have asked for our comments as to whether the fees transferred to the incorporated practice under these contractual arrangements could be reported by the corporation.

Where there is no legal prohibition (either legislative or contractual) against a doctor providing medical services through a professional corporation, the income from the provision of these services would be reported by the person carrying on the business of providing the medical services. In order to determine who is carrying on the business in each case where a physician (individually, or through their professional corporation) transfers fees to the incorporated practice, we would need to review all of the facts surrounding the particular situation, including the terms of the written agreements, nature of the services being provided, consideration paid for the provision of the services, and the activities undertaken by the incorporated practice and the physician or professional corporation with which the incorporated practice has contracted.

Since the situation presented in your letter appears to relate to actual proposed transactions involving specific taxpayers, such a review would only be undertaken in the context of an advance income tax ruling request. Please refer to Information Circular 70-6R5 Advance Income Tax Rulings, for information on the procedures to follow for requesting such a ruling.

We trust that our comments will be of assistance.

Yours truly

John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch

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