10 December 1999 GST/HST Ruling 7027/HQR0000633 - Applications of the GST/HST to the Transactions Between a Walk-in Clinic and Associate Dentists

Dear Sir:

This letter is in response to your letter to the XXXXX of January 7, 1997 (with attachments), concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the transactions between XXXXX and associate dentists. The subject of your enquiry has been under an extensive review. As a result of this review, we have clarified our position on the application of the GST/HST to various payments made within medical practices.

Please note that as of November 1, 1999, Revenue Canada became the Canada Customs and Revenue Agency (the "CCRA").

On the basis of the above-mentioned letter and a written agreement between XXXXX and an associate dentist, as well as your telephone conversation of September 29, 1998 with XXXXX, formerly of this office, our understanding of the facts and the transactions is as follows:

Statement of Facts

1[.] XXXXX is a corporation that operates as XXXXX, a walk-in dental clinic, located in XXXXX[.]

2[.] XXXXX has entered into written agreements with associate dentists pursuant to which the associate dentists will engage in the practice of dentistry at the clinic.

3. The associate dentists are deemed to be self-employed, independent contractors, qualified and licensed to practice dentistry XXXXX[.]

4. The terms of the written agreement state that XXXXX will supply reception services, equipment, materials, and supplies to the associate dentists required for the practice of dentistry, as well as staff and all the costs associated with hiring, training, benefits, etc. for the staff.

5. The associate dentists are responsible for equipment they require in addition to that included in Fact #4 above, as well as Canada Pension Plan contributions, income taxes, licensing fees, continuing education costs, and all other taxes, fees, costs and expenses related to their practices.

6. XXXXX is responsible for all costs associated with the billings and collections related to the services provided by the associate dentists. The dental services are paid for either by the individual, by a private insurance company, XXXXX[.]

7. Although dental insurance claims are submitted by XXXXX the insurers generally require that the claim be made in the name of the dentist. The statement and cheque from XXXXX is mailed to the clinic, but as is the policy of most insurers, the cheque is made payable to the dentist. The clinic deposits the cheque to the clinic's bank account pursuant to written instructions provided by the associate dentist to the bank allowing cheques made out to the dentist to be deposited to the clinic's account.

8. Pursuant to the written agreement between XXXXX and the associate dentists, XXXXX shall pay each associate dentist, by the 15th day of each month, XXXXX of the net collections of the associate dentist for the immediately preceding month.

9. XXXXX retains the remaining XXXXX of the net collections of the associate dentists.

Ruling Requested

The portion of the net collections of the associate dentists retained by XXXXX is not subject to the GST/HST.

Ruling Given

Based on the facts set out above, we rule that the portion of the net collections of the associate dentists that XXXXX retains is in respect of a taxable supply of a management service made by XXXXX to the dentists and is therefore subject to the GST/HST at the rate of 7%.

This ruling is subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST/HST Memoranda Series. We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal; that there are no relevant changes in the future to the Excise Tax Act (the "ETA"), or to departmental interpretative policy; and that you have fully described all necessary facts and transaction for which you requested a ruling.

Explanation

The supply of health care services by medical practitioners is exempt pursuant to section 5 of Part II of Schedule V of the ETA. This provision exempts the supply of health care services by medical practitioners when rendered to individuals. Section 9 of this Part also exempts the supply of goods and services where, and to the extent that, the consideration for the good or service is reimbursed by a provincial health insurance plan. As a result, many supplies made by medical practitioners to their patients are exempt of tax.

The CCRA's administrative position regarding management corporations and health care services is set out in GST Memorandum 300-4-2 at paragraph 27. The corporation's charges to medical practitioners for reception services, equipment, material, supplies, etc. are taxable, and the corporation is entitled to claim input tax credits for the tax paid for business expenses used to provide these services. A copy of the relevant portions of GST Memorandum 300-4-2 is enclosed for your convenience.

Notwithstanding the arrangement between XXXXX and the associate dentists, the dentists are remunerated by the insurers or, where the services are not insured, the patients, as pursuant to XXXXX XXXXX cannot be a provider of the dental services or receive remuneration for such services. The written agreement between XXXXX and the dentists does not negate the fact that the dental services provided by the dentists are with respect to the activities of the dentists, not XXXXX[.] The written agreement is an internal arrangement between XXXXX and the dentists that reflects the business practices of XXXXX and is unrelated to the provision of health care services by the dentists. Although XXXXX becomes, by way of this internal arrangement, entitled to the fees payable in respect of the dentists' services, the arrangement does not alter the nature of the transaction, i.e., the fees are remuneration paid to the individual dentists by the insurers or patients. When the dentists "assign" their cheques to XXXXX bank account, they are in effect assigning their own money.

The portion of the fees XXXXX does not remit to the associate dentists is in respect of a separate supply from the health care services rendered by the dentists to individuals. In accordance with the terms of the written agreement between XXXXX and an associate dentist, this separate supply is a supply by XXXXX of a management service consisting of the provision of reception services, equipment, materials, dentistry supplies, etc., to the dentists, as well as handling the billings and collections related to the dental services on behalf of the dentists. Therefore, the portion of the dentists' fees that XXXXX retains is consideration paid by the dentists for the supply of this management service. As there are no provisions in the ETA to exempt this supply, the GST/HST is applicable to the payments made by the associate dentists to XXXXX in respect of the management services.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-6761.

Yours truly,

Susan Eastman
Municipalities and Health Care Services Unit
Public Service Bodies and Governments Division