Please note that the following document, although correct at the time of issue, may not represent the current position of the Canada Revenue Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence du revenu du Canada.
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 11th floor
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 185487
Dear [Client]:
Subject: GST/HST RULING
Application of GST/HST to supplies of [a] […][medical device]
Thank you for your fax of June 22, 2017, concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to the fee charged by […] ([…][the Business]) to an individual for the use of a […][Monitor].
The HST applies in the participating provinces at the following rates: 13% in Ontario; and 15% in New Brunswick, Newfoundland and Labrador, Nova Scotia and Prince Edward Island. The GST applies in the rest of Canada at the rate of 5%.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
STATEMENT OF FACTS
1. We understand you are a sole proprietor […]. The Business is not registered for the GST/HST.
[…].
2. The Business purchases [Monitors] designed by […]. You will purchase the following models: […]. Each model comes with software to generate a […] report.
It is understood that the Business will enter into a separate agreement with clinics across […][Province X] who wish to offer their patients […][vital sign] monitoring services. In essence, the agreement is an arrangement whereby the Business will deliver Monitors to the clinic for rent by patients who must undergo monitoring for […][medical reasons].
The Business and the clinic will not be in an employee/employer relationship or involved in business for any reason. In addition, the patient will be a patient of the clinic and will not be a patient of the Business.
You are in the midst of developing a general agreement for the clinics to enter into with the Business outlining the roles and responsibilities of each party under this arrangement. The agreement will include terms such as the number of Monitors to be delivered to each clinic, who is responsible for maintenance […] of the Monitor, the circumstances in which the Business can remove a Monitor and so forth.
The agreement will also stipulate that the clinic or designated staff member has exclusive access to the data collected during the monitoring stage and is responsible for generating the […] report. The agreement will further state that the Business will not have access to the data or the report. As part of the agreement, the Business will provide each physician with both the Monitor and the software to enable the access, reading and manipulation of data collected during the monitoring stage.
There will be no fee charged to or payment made by either party to the other in relation to the Monitors and the Business will maintain ownership of the Monitors at all times.
3. During the assessment of a patient, if a physician determines that the patient has symptoms consistent with […], the physician will prescribe […] monitoring for the patient. The physician will bill the […][provincial health care plan] for the patient assessment.
The patient will meet with a nurse practitioner at the physician’s office to receive instructions on how to use the Monitor. The nurse practitioner will also schedule a follow-up appointment for the patient to meet with the physician to discuss the results from the test. It is understood that the nurse practitioner is not employed by or on contract with the Business.
The patient will be required to sign a general rental agreement for the [#] hour use of the Monitor. It is understood the rental agreement is currently being drafted. You expect the agreement to outline the terms of the rental and include duration, instructions on use, maintenance, and information on a rental fee. The agreement will state that all data collected is for exclusive use by the individual and their physician.
4. The nurse practitioner will instruct the patient to make a payment to the Business for the use of the Monitor through the payment portal on the Business’ website. The cost of using a [Monitor] is not covered by the [provincial health care plan] or many private insurance plans. The invoice issued to the patient by the Business will indicate that the fee charged is for the [#] hour rental of the Monitor (plus any applicable […][GST/HST]).
5. At the designated time, the patient will begin to monitor his or her [vital signs]. The Monitor automatically […] records the patient's […][vital sign data]. The data from the [Monitor] is compiled and […][saved].
Upon the return of the Monitor, the physician (or another member of the clinic) will […][retrieve the data] and generate a report of the results.
6. The Business will not have any contact with the patient and will simply deliver the Monitors to and pick-up from the physician’s office.
RULING REQUESTED
You would like to know whether the fee charged to an individual in [Province X] by the Business for the use of a [Monitor] is subject to [GST/HST]?
RULING GIVEN
Based on the facts set out above, we rule that a supply of a [Monitor] made by way of lease by the Business to an individual in [Province X] is subject to the [GST/HST] at the rate of […]%. However, if the Business is a small supplier, the Business will not be required to charge and collect the [GST/HST] on supplies of the [Monitors] made by way of lease.
EXPLANATION
Generally, all supplies of property and services made in Canada are taxable unless an exemption from the GST/HST applies. Taxable supplies are supplies made in the course of a commercial activity and may be taxable at the rate of 0% (zero-rated supplies), 5%, 13%, or 15% on the value of the consideration for the supply depending on the province in which the supply is made. Zero-rated supplies are included in Schedule VI. Exempt supplies are not subject to the GST/HST and are included in Schedule V.
Prior to determining the tax status of a supply, it is necessary to determine whether the supply is a supply of property or a supply of a service.
Subsection 123(1) of the ETA defines “property” and “service” to mean:
“property” means any property, whether real or personal, movable or immovable, tangible or intangible, corporeal or incorporeal, and includes a right or interest of any kind, a share and a chose in action, but does not include money;
“service” means anything other than
(a) property,
(b) money, and
(c) anything that is supplied to an employer by a person who is or agrees to become an employee of the employer in the course of or in relation to the office or employment of that person;
Whether a transaction between parties constitutes a supply of property or a supply of a service depends on the substance of the agreement between parties. If the substance of the agreement is the transference of property to the recipient without any professional services rendered to the recipient in connection with the property, then the transaction is likely one of a supply of property. This is typically the case for a manufacturer, distributor, and retailer who supply property by way of sale or lease. However, if the substance of an agreement is for the skill of a professional or for the performance of certain work, then the transaction can be characterized as a supply of a service.
Although the name of the Business “[…]” and its website state that the Business offers […], the facts in this case suggest that the Business is making a supply of a Monitor (property) by way of lease to the patient of the physician. In our view, the physician/clinic, not the Business, will be providing the monitoring service to their patient as part of their patient’s overall diagnostic assessment.
The rental agreement between the individual and the Business will indicate that the purpose of the rental agreement is the transfer or lease of the Monitor from the Business to the individual for a [#] hour period. In addition, the invoice issued to an individual at the time of payment will also indicate that the fee charged to the individual is for the rental of a Monitor.
Although an individual will rent the Monitor for purposes of generating a report of [vital signs] activity to diagnose […] thereby supporting the view the individual is acquiring a service, in this case, the report will be generated and read by the individual’s physician (or other member of the clinic) and not by the Business. The Business will not receive the data or have access to the report generated by the physician.
The fact that a report can be generated from the data collected by a Monitor owned and leased by the Business in and of itself is not sufficient in this case to conclude that the Business is making a supply of a service. Based on these facts, there appears to be no provision of professional skill, performance of work or human involvement by the Business that could characterize the transaction between the individual and the Business as one of a supply of a service.
Subsection 136(1) deems a supply, by way of lease, licence or similar arrangement of the use or right to use tangible personal property as a supply of tangible personal property. There is no provision in the ETA to zero-rate or exempt from HST the supply of a Monitor made by the Business to a patient in [Province X]. Therefore, the supply of the Monitor by the Business is subject to [GST/HST] at the rate of […]%.
However, under section 166, if the fee for the supply of the Monitor made by the Business is paid or becomes due while the Business is a small supplier, who is not a registrant, the fee is excluded from the calculation of tax payable in respect of the supply. Under section 148, a small supplier is a person whose worldwide revenue from taxable supplies, and those of associated persons, does not exceed $30,000 (or $50,000 if the person is a public service body) in a single calendar quarter and in the last four consecutive calendar quarters. The calculation excludes consideration attributable to the sale of goodwill of a business, supplies of financial services, and supplies by way of sale of capital property.
Therefore, no tax is payable in respect of the rental fee that is paid or becomes due when the Business is not registered nor required to be registered for GST/HST. Therefore, provided you and any associated persons do not have revenue from taxable supplies that exceeds the $30,000 threshold, you will not be required to register for the GST/HST or collect GST/HST on the rental fee for the Monitors.
For further information, please refer to Guide RC4022, General Information for GST/HST Registrants and GST/HST Memoranda Series 2-2, Small Suppliers.
In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, the Canada Revenue Agency (CRA) is bound by the ruling(s) given in this letter provided that: none of the issues discussed in the ruling(s) are currently under audit, objection, or appeal; no future changes to the ETA, regulations or the CRA’s interpretative policy affect its validity; and all relevant facts and transactions have been fully and accurately disclosed.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-670-7934. 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,
Alison Jones
Health Care Sectors Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate
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