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Citation: 2005TCC405
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Date: 20051116
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Docket: 2002-2851(GST)G
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BETWEEN:
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WEST WINDSOR URGENT CARE CENTRE INC.,
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Appellant,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
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REASONS FOR JUDGMENT
Hershfield J.
[1] The Appellant (the "Centre") applied for, but was denied, a rebate of GST remitted by it in respect of amounts paid to it by physicians for facilities and services provided in the course of operating a medical clinic. The basis for the claim is the assertion that it did not, in fact, make a supply to physicians and that it did not, in fact, receive payments from physicians so that the collection and remittance of the tax was in error.
[2] The Respondent's theory of the operating structure of the Centre follows what I might call the typical structure. Physicians see their patients at a clinic and are paid by their patients or more commonly by insurers such as the Ontario Health Insurance Plan ("OHIP"). The physicians in turn pay overhead for facilities such as an office and workplace, equipment, support staff and a variety of other necessary and incidental supplies. The patient (insurer) pays the physician a fee for medical services in respect of which the patient is the recipient. Such supply, by the physician, is an exempt supply so neither the patient as the recipient of the supply nor the physician as the supplier have to pay or remit GST. However, when the physician pays for workplace facilities and incidental supplies required to practice medicine, the physician, not the patient, is the recipient of that supply and that supply is not treated by the Respondent as an exempt supply. The physician, as recipient and consumer of such infrastructure supplies, is liable to pay GST and the clinic, as provider of the supply, must collect and remit it. In the case at bar, the Appellant collected GST from the physicians and then remitted collected amounts as this scenario requires. However, it now asserts that this was in error and that the actual scenario that must govern the case at bar is one that acknowledges that the Centre made its supplies to patients, not to the physicians. On that basis GST would have been paid and collected in error.
[3] The Appellant's theory of the operating structure, based on a contractual regime governing the relationship between the physicians and the Centre, is that the Centre provides services to its patients on its premises, staffed and operated as a hospital would operate. Under this structure the Centre retains the physicians as independent contractors to provide medical care to its (the Centre's) patients. In this scenario the physicians are not recipients of a supply made by the Centre. Indeed, in this scenario, the supplier is the physician and the recipient of the supply is the Centre.
[4] I note here that the GST consequences of the Appellant's theory of the operating structure is not the subject of this appeal except to the extent it would allow that GST collected and remitted under the Respondent's theory of the operating structure was in error. Nonetheless, an analysis of the Appellant's theory of the operating structure requires, in my view, consideration of the GST consequences that flow from such structure. Indeed, counsel devoted much of their energy to this question. Perhaps the reason for Appellant's counsel focusing on the Centre's asserted exempt supply to its patients was to demonstrate that such supply was not a fiction in the context of accepted jurisprudence on incorporated entities offering health care. Further, it was likely felt necessary to focus on this supply to satisfy me that giving legal effect to the express terms of the operating structure would not result in patients being the recipients of a taxable supply of health care. Such result would inevitably cause the Appellant's case to self destruct.[1]
[5] The Appellant relies principally on section 2 of Part II of Schedule V to the Excise Tax Act (GST Portions) to support its assertion that the services delivered by the Centre were exempt health care services made to its patients. To fit that section, the Centre must be a "health care facility". If it is, its "institutional health care services" to its patients are exempt supplies. To further this position, emphasis was placed on the hospital-type nature of the Centre. It provides urgent care one step down from a hospital emergency room. Its professional personnel are all emergency physicians and emergency nurses.
[6] The Respondent argues that the Centre is not a "health care facility". To be a "health care facility" it must make supplies to its patients. The Respondent argues that the Appellant's supplies are not made to its patients but rather are supplies made to physicians attending to their patients at the Centre and who retain the Centre to provide the infrastructure for their medical practices. Payments by the doctors for such services are said not to be exempt. What is exempt is the service they provide to their patients.
[7] The Respondent further argues that the other exempting provisions pleaded by the Appellant do not apply. As well, the Respondent argues that the rebate provision relied on, namely section 261 of the Excise Tax Act (the "Act"), does not permit persons who "remit" tax collected by them in error to apply for refunds of remitted GST where the error was that no supply was made. While this is a threshold issue that might be considered first, so much attention was paid to the GST consequences of the Appellant's theory that addressing them has been hard for me to avoid. For that reason and in deference to counsels' efforts, I will comment on the merits of the appeal before considering the Appellant's standing to bring it.
[8] Lastly, I note that the Appellant argued that if I accept the Respondent's position, that it made infrastructure supplies to physicians, then that supply, or one or more of its components, such as nursing services, should be recognized as being an exempt supply. The Respondent argues that there were no services provided by the Appellant that were not incidental to or part of a single supply made to physicians and that the Appellant's supply to physicians was not exempt.
[9] To complete this "overview" it is helpful to make a few brief comments on the scheme of the Act in terms of its treatment of suppliers of exempt supplies such as physicians. They are treated as the end-users of the supplies they receive. They get no input tax credits ("ITCs") for the GST paid by them on such supplies since, generally speaking, they are not allowed to be registrants under Subdivision d of Division V. This is because the exempt supplies they provide patients do not constitute a commercial activity.[2] Where supplies are provided by a clinic to physicians, the clinic can be a registrant and obtain ITCs on the basis that its supplies are not exempt supplies and on the basis that it is not the end-user in the chain - the consumer is the physician. In this context, the protection of the fisc, to the detriment of physicians, hinges on: the clinic's supplies (to physicians) not being exempt; the clinic not making exempt supplies to patients; and, the physicians not getting ITCs. The Appellant's position appears to do some damage to this scheme but that is not necessarily the case. If the Appellant is correct in its assertion that it makes an exempt supply to its patients, it will lose its standing to claim ITCs.[3] It becomes the end-user of supplies acquired by it. To this extent the fisc would presumably be protected since, as part of this scenario, there are no supplies to physicians. The only possible loss to the fisc would be tax on the value added, if any, to the supply that the clinic is presumed to make to physicians under the scenario that physicians are the end-users of the clinic's supplies. On the other hand, if there are supplies made by the physicians to the clinic as asserted by the Appellant, the fisc may be ahead unless that supply is exempt. All that said, it cannot be readily asserted that the Appellant's position flies in the face of the scheme of the Act.
[10] The Appellant called three witnesses. The first witness, Dr. Dedumets, was a shareholder-physician of the Centre; the second, Ms. Hill was the Manager of the Centre (an emergency nurse herself); and, the third was the accountant for the Centre. The Respondent called one witness, Dr. Salisbury, a medical Doctor employed by the Provider Services Branch of the Ontario Ministry of Health, who testified knowledgeably about OHIP billing procedures. The evidence given was quite detailed with few if any contradictions. The following is a review of the pertinent facts as I have found them.
(i) The Centre's Services
[11] The Appellant is a medical clinic providing urgent care medical services in an area of Windsor that was lacking in hospital and emergency room services. The Centre was established by emergency room physicians following the closure of Windsor West Hospital in about 1997. While the Centre is not an "emergency room" in the strict sense, it provides front-line urgent care to patients who do not present with life or limb-threatening problems. The shareholders of the Centre, 14 in number, are all emergency room doctors licensed to practice medicine in Ontario.[4] They all worked at the Centre as independent contractors. They worked at the Centre in shifts and, as well, worked in Windsor area hospital emergency rooms. At all times during the Centre's operating hours, personnel at the Centre consisted of a clerk, a registered nurse and a physician. All nurses had emergency room training and interacted extensively with patients in performing their duties at the Centre.
[12] During the relevant period, the Centre had five examination rooms and one procedure room. The examination rooms were used for regular patient visits and had standard fixtures such as a sink, common medical equipment such as a blood pressure cuff, an ophthalmoscope and an otoscope, and a variety of medical paraphernalia such as gloves, gowns, swabs, tongue depressors and other supplies. One examination room was equipped with a slit lamp for eye examinations. The procedure room was equipped for heart monitoring as well as for suturing open wounds and for incision and drainage of boils and the like. The procedure room was also equipped for doing splints for bone fractures. Additionally, extra equipment such as nebulizers (for the treatment of asthma and other breathing conditions) and pulse oximeters (for measuring lung function) were kept at the Centre and could be moved into any of the rooms as necessary. The Centre also had a defibrillator, a heart rhythm monitor, an electrocardiogram, a glucometer, an intubation box and a bag-valve mask. Of course, the Centre also had less specialized supplies like needles, syringes, suturing supplies, an autoclave, and stock medications.
[13] While it is not necessary, in my view, to review in detail the evidence of patient care at the Centre, it is important that I acknowledge that I am satisfied that it does considerably more in terms of patient care than your standard doctor's office or walk-in clinic. Suturing wounds, setting fractures, slit lamp eye examinations, doing follow-up procedures for patients released from emergency hospitals and having direct pre-admission rights to hospital emergency departments and other hospital specialty wards including orthopedics, cardiac care and the like are just some examples of the important role this facility plays in the community in terms of supplementary emergency services. Being staffed with specially trained emergency nurses also underlines the distinct nature of the Centre. Even record keeping is done on an incident basis as in emergency rooms as opposed to maintaining traditional patient files. Just the fact that the Centre's medical personnel consists entirely of emergency room doctors speaks volumes. I accept then Dr. Dedumets' testimony that the Centre offers urgent care treatment and procedures different than that provided in most walk-in clinics.
[14] I also accept that the nurses employed at the Centre provided, in a material way, direct patient care that might well go beyond labelling them as part of the "infrastructure" that the Centre provides the attending physicians. They not only assist the doctors in assessing patient needs and attend to treatments but directly, and somewhat independently of the physicians, perform a host of duties relating to administering diagnostic tests (such as drawing blood and administering electrocardiagrams) and duties relating to patient care (such as putting patients on intravenous, administering nebulizers and giving shots). These are just examples of what might be described as nursing services performed for patients as opposed to nursing services performed to assist the physicians in their delivery of medical services. Still, while Dr. Dedumets saw the nursing services as part of the reason the Centre offered more than a traditional walk-in clinic, he did not go so far in my view as suggesting that the Centre offered nursing services to the public independent of their role of supporting and assisting in the provision of medical services by the attending doctors. As well, I note that all patient services (including nursing services) are billed as medical services for procedures performed by the doctors. To recognize that specially trained registered nurses can attend directly to a variety of the medical needs of patients does not then necessarily distract from a finding that they are part of an essential team quarterbacked by doctors which is to suggest that their services form part of a single supply made by the doctors.
(ii) The Agreement
[15] As noted the arrangement between the physicians and the Centre in this case is the subject of an agreement between them whereby the physicians agreed with the Appellant to provide medical services to patients of the Centre.[5] It is clear then that the parties intended that the Centre be regarded as the service provider to its patients - like a hospital might be said to provide services to its patients. The Centre wants to be seen as functioning like an emergency room of a hospital with no regular or ongoing patient/doctor relationships and with incident files as opposed to patient files.
[16] The agreement goes on to provide that the Centre is to bill OHIP for services rendered to its patients and that physicians are to invoice the Centre for medical services rendered by them to the Centre's patients at an amount not greater than 50 percent of the OHIP billings for those patient services. The evidence of Dr. Dedumets was that shortly after that agreement was in place, the percentage for physicians was increased and fixed at 60 percent. There was, as well, an agreement used for physicians retained under locum arrangements. That agreement provided locums with the same 60 percent but acknowledged that the Centre had been refused a group billing number so that the physician under the locum agreement had to agree to the Centre's pre-authorized withdrawal and pre-authorized payment plan whereby the physician would do the billing, receive the OHIP payments and allow the automatic withdrawal of 100 percent of those payments for deposit in the Centre's account. Sixty percent of such transferred funds were to be transferred back to the physician's account as soon as reasonably practical. As I understand the evidence, this was the procedure followed by shareholder-physicians as well until the Centre received a group billing number. Once a group billing number was obtained, all physicians (shareholders and locums) directed OHIP to deposit their billing amounts directly to the Centre's account under the same arrangement whereby the Centre would then pay the physicians their 60 percent pursuant to the agreements. It is clear then that the Centre has engaged the physicians for consideration payable by the Centre.
[17] During the period relevant to this appeal, May 1, 1999 through January 31, 2001, GST (calculated as seven percent of the Centre's net 40 percent entitlement) was deducted from the physicians' 60 percent entitlement and remitted to the Crown by the Appellant. Therefore, for each medical service performed at the Centre, the Appellant would retain 40 percent of OHIP payments, the physician performing the medical service would receive 57.2 percent of OHIP payments and the Crown would receive 2.8 percent as GST (i.e. seven percent of the Centre's net 40 percent entitlement).[6] This practice suggests at least some caution on the part of the physicians (or their advisors) as to their liability to withhold and remit GST on the net 40 percent "compensation" received by the Centre. Regardless, counsel for the Appellant argued that the withholding and remittance was an error that must be rectified by a refund of the amounts remitted by mistake.
(iii) OHIP
[18] As to payments for services provided at the Centre I note that most of the patients were covered by OHIP which made payments to the Centre on the patients' behalf. As well, the Centre was paid under other insurance programs (such as the Green Shield, Workmen's Compensation, or Blue Cross) where patients were so covered. Some patients paid directly. This latter group consisted primarily of non-residents and foreign students attending the University in Windsor. Regardless of the different payment scenarios, Appellant's counsel directed that the appeal was not based on any possible differences in payment terms among these payment possibilities. Accordingly, the Appellant led no evidence on the various terms of insurance coverage. On the other hand, the Respondent put great emphasis on the payment scheme imposed by OHIP. As a result the only evidence of payment terms that I have is that pertaining to OHIP which was introduced by the Respondent's witness, Dr. Salisbury. On that basis I have limited my analysis to OHIP payments. A general review of Dr. Salisbury's uncontradicted evidence follows.
[19] Insured health care services performed by physicians in Ontario are paid for by OHIP. Under the Plan it is the physicians that are entitled to payment and they are given a billing number. Where physicians practice together they may be given a group billing number which identifies the bank account where each member of the group directs their payment to be made. This is accommodated only on the written direction of the physician who is the person entitled under the Plan to be paid. All physicians engaged by the Centre formed the "group" and were in the years covered by the present appeal permitted a group number. The Centre was the designated recipient of amounts payable to each member of that group where the group billing number appeared on the bill. That is, the Centre was the party that received payment for bills submitted by it.[7]
[20] Dr. Salisbury described the group billing number as an administrative convenience permitting submission and payment of multiple physician billings on one account. He said the "group" number is issued to physicians and not the "group". He clearly was of the view that, systemically, payments were to the physicians, not the "group" or the Centre in this case. In legal jargon the physicians might be described as the constructive or beneficial recipients of the payments. To the contrary, Appellant's counsel argued that the group number was the Centre's number. The transfer of income entitlements and the contractual recognition that the patients are the Centre's patients (not the doctor's patients), was argued to support the assertion that notwithstanding OHIP's perspective, the billing number and fees paid belong to the Centre.
[21] Lastly, I note that OHIP's payment scheme, in effect, does not recognize multiple supplies to patients. In "Schedule of Benefits - Physician Services under the Health Insurance Act (July 1, 2003)", promulgated under the Health Information Act Regulations, R.R.O. 1990, Regulation 552, section 29, it states under "General Preamble":
Most insured services include as a constituent element providing the premises, equipment, supplies and personnel used to perform the common and specific elements of the service. [...]
Also under the Preamble, section 10, there is provision for paying physicians for tasks performed under their supervision by non-physicians. That is, the health care regime clearly sees a single supply in respect of the services offered by the Centre.
3. Issues, Arguments and Analysis
[22] The problem in this case is that there are two parties (OHIP and the Centre) that are both liable to pay physicians for the same services to patients. This creates two "recipients" of the same supply under the Act. The Respondent essentially takes the position that both liabilities cannot be recognized and the liability recognized by OHIP to physicians must prevail. The Appellant essentially takes the position that OHIP's liability is to it; however, the Appellant can also rely on the definition of "recipient" in the Act and its argument that the contractual regime between physicians and the Centre governs the GST consequences in this case. To address this issue I must consider who the recipient of supplies is under the Act.
(i) Who is the Recipient of Supplies
[23] One indisputable supply is that made by physicians to their patients. That supply, viewed as a whole, includes all the supplies of the Centre which are, under the single supply principle or incidental supply rule, part of the supply made by physicians to their patients. As such, the Respondent argues that the Centre's supplies, being part of the supply made by physicians to their patients, must be supplies first acquired by physicians from the Centre. That is, for the purposes of the Act, there is a supply made by the Centre to physicians which is the Respondent's theory of the case. Further support for this position is the Respondent's argument that, under OHIP, liability to pay for supplies is only to the physicians which suggests that no payments are made to the Centre except payments made by physicians. Both the Act and health care system then, eclipse the contractual regime's attempt to recast physician's services to patients, as services provided by the Centre.
[24] The Appellant relies on the contractual regime as precluding a finding that the physicians were recipients of a supply. Under the agreement the Centre makes no supplies to physicians whatsoever. Notwithstanding the GST and health care system treatment of services by physicians to patients, the Centre has its own set of relationships that require separate analysis. The Appellant asserts, in effect, that its structure co-exists side-by-side, with the regime asserted by the Respondent and that such co-existence does not admit to or require a finding that the Centre has made a supply to physicians. That patients remain the patients of the physicians does not preclude the existence of a similar relationship with the Centre. That is, in a relationship triangle, the existence of one type of relationship between two parties does not preclude a finding that the same type of relationship exists between one of those parties and the third party to that triangle. If that is the case it would not be incorrect to say that patients are the patients of the Centre notwithstanding that they are also patients of the physicians attending to them. In this context it would not be incorrect to accept the legal reality of the contractual regime of the Centre retaining the services of the physicians as opposed to the other way round.
[25] To assist in appreciating the Appellant's position, it is helpful to review some basic concepts around which the Act is built. "Recipients" of a supply must pay tax and "suppliers" must collect and remit it. A supplier is defined in section 123 as "the person making the supply", and a recipient is defined as:
(a) where consideration for the supply is payable under an agreement for the supply, the person who is liable under the agreement to pay that consideration,
(b) where paragraph (a) does not apply and consideration is payable for the supply, the person who is liable to pay that consideration, and
(c) where no consideration is payable for the supply,
[...]
(iii) in the case of a supply of a service, the person to whom the service is rendered, ...
[26] The definition of "recipient" clearly establishes a hierarchy for determining the recipient of a supply of a service. Liability to pay for the supply will govern where there is consideration payable. The person who receives the supply is the recipientonly where there is no consideration payable.
[27] The Appellant's position suggests two findings: firstly, that the Appellant was entitled to receive OHIP funds on its own account; and secondly, that that means there is a liability on patients to pay the Centre for its services (so as to make them the recipient of their supplies). At first glance it is hard to accept that the physicians' rights to income have been transferred so as to make the Centre the beneficial recipient of OHIP funds in this case. The Respondent has cited several cases confirming the principle that directions to pay, such as those made by physicians to OHIP, do not change who the recipient of the payment is at law. While these cases are clearly good law on their facts, they do not address the case where a right to income has been transferred. With that in mind, I acknowledge that if I accept the Appellant's position that there has been a transfer of income rights then it would be difficult to distinguish this case from the Supreme Court of Canada decision in Campbell which found that doctors could transfer their income rights to a corporation for income tax purposes.
[28] The Campbell decision recognizes that a transfer of income is systemically possible in our health care system notwithstanding that the insurer (OHIP) will only pay medical doctors. That is, it is possible as between the parties, the Centre and its contracting physicians, that a transfer of a right to income has occurred in this case as recognized in Campbell notwithstanding all the regulatory and systemic third party denials of this occurrence. The transfer is a capital transaction at the outset - at the time the agreement is entered into. That the payor's insurer does not recognize the transfer is not relevant. That the physicians were required to give their billing number on the basis that coverage applied to them does not contradict their own acceptance of the contractual transfer of their right to the income. Nor does the transfer undermine the responsibility issues associated with the doctor-patient relationship as was determined in Campbell.[8]
[29] I note at this point that while the documentary evidence of a transfer of the right to income is limited (no transfer or so-called section 85 rollover agreement was put in evidence), I am satisfied that such transfer occurred. There is the agreement referred to above which, implicitly at least, recognizes that such a transfer has occurred. Further, the Appellant included 100 percent of the OHIP receipts in its earnings for accounting and income tax purposes before taking off amounts paid to the independent contractor physicians. Lastly, I note that the legal consequences of such a transfer have no bearing on the coverage under OHIP. That is, there is no suggestion that a patient's insurance coverage is lost by virtue of his/her attending physician having entered into such an arrangement.
[30] A finding that the Appellant, not the physicians, is the beneficial recipient of OHIP payments (as was found in Campbell for income tax purposes) goes a long way in undermining the Respondent's argument as to the direction of the flow of funds. That is, Campbell establishes the Centre's entitlement to funds deposited which makes its obligation under the agreement to pay physicians a legally effective one and undermines any argument of constructive receipt. However, that the agreement is legally effective in transferring rights to a payment, is not determinative of whether a transfer of the liability to pay has been effected. Indeed the liability to pay, OHIP's liability to pay physicians, is unchanged in my view.
[31] Accordingly, there are two parties liable to pay physicians (OHIP and the Centre) and they are seemingly liable for the same supply - physicians' medical services. Under the definition of "recipient" there are then two "recipients" of the same supply. The hierarchy of factors prescribed in the definition dictate that the liability under the agreement prevails over the liability under the regulatory regime in identifying a "recipient" which means that the Appellant is the recipient of the physicians' services for GST purposes. This also recognizes the reality that the Appellant, as a contractual intermediary, does in a legal sense, as confirmed in Campbell, receive the services it contracted for from the physicians. This also means that under the Appellant's structure, it must pay tax under section 165 unless this supply (physicians' services to the Appellant) is exempt. This supply was not dealt with at the hearing or in written submissions.[9] However this should not distract from the analysis of the supply that the Appellant asserts it made to patients. The Appellant's principle argument depends on an exempting provision which applies only if the Centre makes supplies to its patients.
[32] Before looking at that exempting provision, I note that aside from considering whether the Centre serves its patients, it is possible to read the Act as allowing that patients are "recipients" of the Centre's services for GST purposes as asserted by the Appellant. The hierarchy of factors prescribed in the definition of "recipient" confirms that patients (OHIP) are "recipients" since they are liable to pay for medical care. The definition of "recipient" requires that a person be "liable" without specifying to whom the liability is incurred. This does not however address the question as to who makes the supply. This is an open question. While the person to whom there is a liability to pay (the physicians) seems to be a logical choice in selecting a supplier, the Act provides no such express directive. That is, the Act does not expressly contradict the Appellant's position that it can be viewed as making a supply to patients. If that supply is an exempt supply (ensuring that patients are not liable for GST under section 165 and that the Appellant's ITC entitlements are restricted), the analysis would produce a result that would not necessarily offend the scheme of the Act.
[33] This takes me to the exempting provision that requires that patients receiving medical care at the Centre, be patients of the Centre. The Campbell decision is of no assistance to the Appellant on this point. Campbell, dealing with a doctor's transfer of income rights, confirmed that the transfer of that right to a corporation did not affect the doctor/patient relationship. However, that patients remain the patients of the physicians does not preclude the existence of a similar relationship with the Centre. Indeed this is the very conclusion arrived at in Riverfront, a decision of this Court which confirmed that the doctor/patient relationship did not preclude a facility/patient relationship in the context of section 2 of Part II of Schedule V.
(ii) Section 2 of Part II of Schedule V
[34] The Appellant argues that the Centre is a "health care facility" and that its supplies of "institutional health care services" to its patients are exempt supplies pursuant to section 2 of Part II to Schedule V of the Act.
[35] Section 2 exempts:
A supply of an institutional health care service made by the operator of a health care facility if the service is rendered to a patient or resident of the facility [...]
An "institutional health care service" is defined in section 1 as:
[...] any of the following when provided in a health care facility:
(a) laboratory, radiological or other diagnostic services,
(b) drugs, biologicals or related preparations when administered, or a medical or surgical prosthesis when installed, in the facility in conjunction with the supply of a service included in any of paragraphs (a) and (c) to (g),
(c) the use of operating rooms, case rooms or anaesthetic facilities, including necessary equipment or supplies,
(d) medical or surgical equipment or supplies
(i) used by the operator of the facility in providing a service included in any of paragraphs (a) to (c) and (e) to (g), or
(ii) supplied to a patient or resident of the facility otherwise than by way of sale,
(e) the use of radiotherapy, physiotherapy or occupational therapy facilities,
(f) accommodation,
(g) meals (other than meals served in a restaurant, cafeteria or similar eating establishment), and
(h) services rendered by persons who receive remuneration therefor from the operator of the facility;
[36] A "health care facility" is defined in section 1 as:
[...] a facility, or a part thereof, operated for the purpose of providing medical or hospital care [...]
[37] In Riverfront, Bell J. considered section 2 and noted three questions regarding its application: whether the supply was made to a patient of the facility; whether the facility operated for the purpose of providing medical care; and whether there was a supply of an institutional health care service.
[38] The first question deals with the issue in the case at bar. Bell J. concluded that "in usage" (i.e. in common usage), a patient of a physician practising in a clinic is regarded as a patient of that clinic. He found that to be sufficient to meet the patient/facility requirement even though there was no doubt as to the paramountcy of the physician/patient relationship which also clearly existed in these situations.
[39] As to whether the facility operated for the purpose of providing medical care, Bell J. considered whether examinations for insurance companies and medical reports for personal injury cases were "medical care", a term not defined in the Act. He found that the incorporated operator of the facility in that case did provide medical care. The services provided at the Centre go well beyond the services considered in Riverfront and clearly constitute "medical care". Further, the Respondent cannot suggest that the Appellant must be denied standing as a health care facility on the basis that it is not a medical practitioner. It is the Appellant's purpose that defines its status as a health care facility, not how or who it engages to carry out that purpose.
[40] This takes me to consider the requirement in the definition of "institutional health care service" to identify one or more enumerated services performed at the Centre. It is not sufficient to give general evidence that the Centre provides, for example, diagnostic services and claim exemption under paragraph (a) of the definition of "institutional health care services" when it provides none of the diagnostic services of the type mentioned in that paragraph. Similarly, no reliance can be placed on paragraph (b) of that definition simply because drugs are administered at the Centre since such administration is not in conjunction with a medical service contemplated in that paragraph.[10]
[41] Paragraph (h) of the definition of "institutional health care services" however exempts services provided at the facility where rendered by persons remunerated by the health care facility operator. Such persons include physicians.[11] The consideration for that supply at the facility to patients of the facility is the total amount paid by OHIP for that supply. Section 165 of the Act imposes GST on the value of the consideration for this supply and is the amount exempted under paragraph (h). To attribute a different value to the services rendered at the facility than the amount paid by OHIP would not only fly in the face of that regulatory regime but as well fly in the face of a finding in this case that the supplies to patients are a single supply. That the Appellant pays the physicians less is not relevant since the subject provision does not limit the exemption to the remuneration paid to the person rendering the service.
[42] While the foregoing analysis may support a finding that the Appellant has made an exempt supply to its patients under section 2, I note that the section does not exempt the supply made by the physicians to the Centre. Section 9 is the only possible provision that might be relied on by the Appellant in respect of this supply. That section exempts a supply if the consideration for the supply is payable or reimbursed by government under a provincial health care plan. Supplies to patients are payable by government under OHIP. That does not necessarily suggest that supplies to health care facilities are covered by OHIP. Indeed, the evidence in the case at bar suggests otherwise. Adhering to the Appellant's own structure as recognized in Campbell, the consideration paid to the physicians is payable under the terms of a private agreement not under a provincial health care plan. Similarly there is no evidence in this case that there is a reimbursement under such plan for expenses of health care facilities. On the other hand, the exemption might be more widely construed. While there is little on the subject, I would suspect that a physician's independent contractor services to a hospital would be treated as an exempt supply under this provision. Independent contractors to medical firms (e.g. locums) are treated as making exempt supplies. In such cases the infrastructure costs are already borne by suppliers that cannot claim ITCs so the scheme of the Act is not offended by flowing through exempt supply treatment to the physicians providing contractor services. The same treatment might well apply to independent contractors providing services to health care facilities including medical clinics providing exempt supplies.
[43] The exempting provisions of the Act are too loosely worded to provide clear answers to such questions. In any event, the exempting provisions were not argued in the context of the physicians' supply to the Appellant so I will not pursue the question further except to say their application is not obvious.
(iii) The Respondent's View Revisited
[44] Being satisfied that the operating structure of the Appellant as prescribed by agreement can co-exist side-by-side with the health care system without imposing GST on patients, I am inclined to say that it should be given effect which is to say that the Appellant made no supplies to the physicians. In that case there would be no need for me to review the sections relied on by the Appellant in its attempt to argue that even the Respondent's theory of the operating structure of the Centre would not impose GST on the infrastructure paid for by physicians under that theory. In brief however, I note that reliance was placed on section 9 on the basis that all the Appellant's infrastructure services were reimbursed under OHIP which cover overhead costs in its fees schedule or on section 6 on the basis that, at least, nursing services are separate supplies not incidental to the supply of medical care by the physicians.
[45] As to section 9, it does not prescribe that the person making the supply (the physician) must be the person reimbursed. However, it is not a leap to suggest that "reimbursed under the plan" must mean "reimbursed to doctors under the plan" as under the "plan" no one else is entitled to be reimbursed. As well, there is arguably no payment or reimbursement of infrastructure costs under OHIP. Recognizing in fee schedules, on a global basis, that all such costs are included, so as to preclude additional billing, does not constitute payment or reimbursement of specific overhead expenses. As to section 6, I acknowledged at the hearing the possibility that that section, exempting certain nursing supplies, could be read broadly enough to exempt nursing services even under the Respondent's theory of the Appellant's operating structure.[12] The testimony of Dr. Dedumets on the other hand lends itself more to a finding of a single supply. In any event it is not necessary for me to decide such issues.
[46] This takes me to consider the matter of the Appellant's standing to obtain the rebate claimed under section 261 of the Act.
4. Does the Appellant Have Standing to Bring This Appeal
[47] The Appellant brought the application for a rebate of taxes paid and remitted in error under section 261 of the Act. It is important to note at the outset of my consideration of this section and section 232 (which also deals with amounts paid in error) that nowhere in these sections are the terms "recipient" "supplier" or "supply" used. Indeed, who is a "recipient" or who is a "supplier" is actually irrelevant in this discussion. Who paid the tax and who collected and remitted the tax are the only relevant concepts. Yet, it is common to refer to these sections as having distinct application to recipients or suppliers. Indeed in referring to authorities it is impossible to avoid referring to these sections having specific application to recipients and suppliers. Giving in to that, I note that references in this part of my Reasons to the Appellant as the "supplier" (of services to the physicians) are loosely made in the sense that it is the party who has, in fact, collected and remitted tax paid by the physicians albeit assertedly in error. Similarly, the physicians may be referred to as the "recipient" of a supply but such references are only being loosely made in the sense they are the parties who have, in fact, paid the tax albeit assertedly in error.
[48] The Respondent relies on the general principle that section 232 refunds pertain to those who collect or remit tax in error (suppliers) while section 261 rebates pertain to those who pay tax in error (recipients) as per R. Mullen Construction Ltd. v. Canada[13] and the recent decision in McDonell v. Canada.[14] The Respondent asserts that the physicians paid the tax (erroneously or not) and in this case are the only persons with standing under section 261.
(i) Who paid the GST?
[49] There is no doubt on the facts of this case that the physicians paid the GST. It was deducted from their fee to the Centre which was 60 percent of OHIP billings paid to the Centre. The persons paying the tax, suffering the burden of the tax, were clearly the physicians.
[50] I also note a corporate undertaking signed by the president of the Appellant corporation. The undertaking stipulated that, should any reimbursement of GST be paid to the Centre, the physicians would receive an amount commensurate to the proportion of GST that each physician paid. The undertaking stated, in part:
On behalf of West Windsor Urgent Care Inc., I confirm that the said corporation acknowledges and undertakes to refund to each of you your proportionate share of any refund of GST obtained through the tax appeal presently pending in the Tax Court of Canada. Such refund will be net of professional legal expenses to be paid pursuant to the Letters of Engagement entered into between West Windsor Urgent Care Inc. and BDO Dunwoody. Such reimbursement of GST recovered as a result of the aforesaid tax appeal shall be made in the event that the tax appeal is successful.
This undertaking was made pursuant to a corporate resolution. This resolution was referred to by Appellant's counsel, who read the following extract:
Dr. Dedumets put forward the following motion with regards to potential recoup of the GST. If the current legal action regarding the GST between the clinic and the Federal Government is ruled in the clinic's favour there will be a refund of GST payment to physicians. As the legal and accounting team assisting the clinic on this matter is working on a contingency basis, all the potential refund awarded through this action will be paid to the clinic and not to the individual physicians. The amount of the GST refund remaining following appropriate payment to the lawyers and accountants pursuing this action will be distributed to partner physicians based on their percentage of billings during the GST refund period. Seconded by Dr. Minardi and passed. [Emphasis added.]
[51] If the Appellant paid the GST, one would expect that no such apportionment would be required in the event of this appeal's success: the Appellant would be entitled to its rebate and would receive the GST it paid in error. If this amount was then to be distributed to the physicians, it would presumably be distributed as dividends according to their holdings. By distributing it to the physicians based on their percentage of billings during the GST refund period, the corporation is recognizing that the physicians paid the GST on each of their billings.
[52] Once it is confirmed that the physicians paid the tax, there is really no issue as to who collected it from them and remitted it to the Crown. That was the Appellant.
[53] This takes me to the more difficult part of the Respondent's position: that section 261 allows only the persons who paid the tax (i.e. the physicians) to apply for the rebate of GST paid in error. If so, the Appellant has no standing to bring this appeal.
(ii) The Legislation and Analysis
[54] As noted, there are two relevant sections to consider, namely, sections 232 and 261.
[55] Section 232 governs "refunds" and states, in part:
232(1) Refund or adjustment of tax-Where a particular person has charged to, or collected from, another person an amount as or on account of tax [...] in excess of the tax [...] that was collectible by the particular person from the other person, the particular person may, within two years after the day the amount was so charged or collected,
(a) where the excess amount was charged but not collected, adjust the amount of tax charged; and
(b) where the excess amount was collected, refund or credit the excess amount to that other person. [...]
[56] This provision affords the person who paid the tax (the physicians) a chance to receive a refund of taxes collected in error from the supplier (the Centre) who collected the tax. It is the supplier that gives the refund. However, the provision is also the refund provision for the supplier. This is provided in subsection 232(3). That is, subsection 232(3) provides rules pertaining to refunds or credits for the supplier where the supplier has provided a refund or credit to recipients under this section. The subsection allows for the supplier, the collector of the tax, to obtain a credit of the amount it has both remitted and refunded where GST was collected in error. The credit is to the supplier's "net tax" amount which is a remittable amount under subsection 228(2).[15] The Respondent argues that this is the provision that suppliers must use to get refunds.
[57] Section 261 governs "rebates" and states:
261(1) Rebate of payment in error-Where a person has paid an amount
(a) as or on account of, or
(b) that was taken into account as,
tax, net tax [...] or other obligation under this Part in circumstances where the amount was not payable or remittable by the person, whether the amount was paid by mistake or otherwise, the Minister shall, subject to subsections (2) and (3), pay a rebate of that amount to the person. [Emphasis added.]
[58] The Respondent asserts that this section makes provision for recipients of supplies, as opposed to suppliers, to obtain a refund from the Crown. Where suppliers have not given refunds as allowed in section 232, recipients who have overpaid GST in error can apply directly to the Minister for the refund. An amendment to subsection 232(3) effective in respect of refunds after December 10, 1998 was added to ensure that the recipient does not receive both a refund from the supplier under section 232 and a rebate from the Crown under section 261.[16]
[59] The scheme of the Act seems to be that suppliers, as tax collectors, may account back to recipients for GST amounts charged or collected in error. Regardless of this permissive provision, the supplier as collector must remit amounts actually collected even if collected in error.[17] The fisc then always holds monies collected in error. If the recipient of the supply or the person who paid the tax in error gets the refund from the fisc then all is right. However, this may not be practical in which case the fisc benefits from an appropriation of funds that section 165 has not sanctioned. Sometimes it would be more efficient and realistic to let the supplier get the refund and then credit the recipient at least where there are ongoing supplies.
[60] At this point I note as well that suppliers may be reluctant to account back to recipients for GST amounts collected in error. This would exacerbate the problem of the fisc retaining GST collected in error in cases where it is impractical for recipients to apply for refunds.[18] A supplier may make a refund to a customer (recipient) on the basis of a collection being in error and then find, as is the case now, that the CRA does not think that there was an error.[19] Section 232 only applies to give the supplier the refund if there was an error. The supplier may be out of luck if it refunded in error.[20] If that is the case, the refund provisions, taken together, may accomplish little more than the enhancement of the fisc with taxes that were not payable. Regardless, I am encouraged by the Respondent to limit the application of section 261 to ensure that the "scheme" of the Act is given effect and to ensure that double refunds will not be permitted.[21]
[61] The Appellant's position is that a strict reading of section 261 is permissive of the supplier obtaining a rebate. It provides that:
Where a person (the Appellant) has paid an amount
(a) ... on account of ...
... net tax (remittances) ... where the amount was not ... remittable by the person, whether the amount was paid by mistake or otherwise, the Minister shall ... pay a rebate of that amount to the person. (Parenthesis added.)
[62] "Net tax" is the supplier's tax remittance. It is still "tax" but it is to be "remitted" (as opposed to paid) under subsection 228(2). This is not a bar however to the application of the section where the "person" is the supplier since the section is not limited to persons who "pay tax". Very clearly, the section is available to any person who "pays an amount" "on account of" "net tax". While distinctions may be drawn between "paying tax" and "remitting tax" (suppliers do the latter not the former), no such distinction can be made where the reference is to "pays an amount". That the payment is a remittance of net tax, does not mean it is not a payment of an amount. The section expressly anticipates payments on account of net tax which is to say remittances of net tax are payments of an amount on account of net tax.
[63] I note here that Mr. David Sherman, a well respected commentator on GST matters, has been critical of cases that have found or suggested that section 261 can be used by suppliers to obtain a refund. His reasoning does not depend on whether an amount paid can be a remittance. Surely it can be and is. His reasoning is that the section requires that there be an error in the making of the remittance payment. That can only happen, he suggests, where the amount remitted by the supplier was neither collectible nor collected.[22] Collecting $100.00 and remitting $105.00 where $100.00 was the proper tax collectible allows a supplier rebate of $5.00 as only then is there an amount not remittable; namely $5.00. In the case at bar "net tax" was payable by the Appellant (i.e. a remittance was required to be made) because GST was collected. It was not mistakenly remitted but rather was mistakenly collected. If tax is collected or collectible, it is remittable. If remittable, it cannot have been remitted in error which is to say one of the requirements for the rebate cannot be met and in that case, suppliers have no standing to obtain a refund under section 261. On that basis the Respondent argues that the Appellant has no standing to apply for a rebate under section 261. The argument is compelling. This finding concurs with the findings of Chief Justice Bowman in McDonell. [23]
[64] Before concluding, I note that I have considered the possibility of recognizing the Appellant's standing under section 261 on the basis that it was the agent of the physicians who clearly have standing under that section. I have determined that I should not make such exception for a number of reasons. Firstly, the undertaking to pass the rebate on to physicians was given well after the appeal was launched.[24] There are rare, if any, exceptions to the civil litigation principle that the plaintiff must have a cause of action against the defendant at the commencement of the action.[25] Secondly, the agency is not complete. It does not include the locums.[26] Thirdly, the Appellant did not plead this approach or make any direct argument, or provide any authority, supporting this approach. Fourthly, it is generally accepted that a principal's cause of action cannot be advanced by its agent.[27] Finally, there is authority that courts have no jurisdiction to substitute a party where the wrong party appears in a cause of action.[28]
[65] Accordingly, while I am troubled by invoking a technicality in denying a rebate that might otherwise apply, this is not a Court of equity. Tax legislation is strictly construed where its language is clear. Section 261 says exactly what the Respondent says it does. Warnings were there as to limitations of its use by suppliers. I agree with the decision in McDonell. The Appellant does not have standing to bring this appeal. The appeal is dismissed, with costs, for that reason.
Signed at Ottawa, Canada, this 16th day of November 2005.
Hershfield J.
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