A professional corporation owned by three Ontario dentists (the “Recipient”) and generating exempt revenues from its dentistry practice, wished to respond to the needs of its clientele by securing the professional services of Mr. D (the “Supplier”), who performed such services as independent contractor. They agreed pursuant to a fee-sharing agreement that all patients treated by the Supplier were patients of the Recipient, that all invoicing would be by the Recipient and that the Recipient would pay to the Supplier 40% of the revenues generated from treatments performed by him (net of specified expenses including the payroll of contributing dental hygienists).
In finding that the 60% retained by the Recipient was not consideration for a taxable supply made by it to Mr. D (or anyone else), CRA stated (TaxInterpretations translation):
[T]he Recipient retained the services of the Supplier in order to fill a need of its clientele. The Supplier is an independent contractor who is authorized to exercise the profession of dentistry in Ontario. The terms of the contract clearly established that during the term of the contract, all patients treated by the Supplier were patients of the Recipient and that, consequently, all invoicing was to be done by the Recipient. The contract terms did not include any clause for the supply of property or administrative services. Thus, the contract terms do not permit a conclusion that the portion of the net revenues retained by the Recipient represented consideration for a supply.
We instead consider that the underlying character of the terms of the contract entailed a division amongst the parties of the fees paid for health services rendered to patients. Thus, the amount divided between the two parties did not represent consideration for a supply and, thus, no portion of the net fees retained by the Recipient is subject to GST/HST.