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, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 156722
Dear [Client]:
Subject: GST/HST RULING
Post-Bariatric Plastic Surgery Involving the Removal of Excess Skin
This is further to your letter of [mm/dd/yyyy] and our telephone conversation in [mm/yyyy], concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to certain plastic surgery procedures performed after you experienced significant weight loss following Bariatric surgery.
The HST applies in the participating provinces at the following rates: 13% in Ontario, New Brunswick and Newfoundland and Labrador, 14% in Prince Edward Island (effective April 1, 2013) and 15% in Nova Scotia. The GST applies in the rest of Canada at the rate of 5%.
Effective April 1, 2013, the 12% HST in British Columbia has been replaced by the 5% GST and a provincial sales tax.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
STATEMENT OF FACTS
On the basis of your letter and our additional research, our understanding of the facts is as follows:
1. In [mm/yyyy] you underwent gastric bypass Bariatric surgery which was funded by the Government of Ontario through the Ontario Health Insurance Plan (OHIP).
2. OHIP is a plan established under the Health Insurance Act, RSO 1990, c H.6, pursuant to which the Government of Ontario pays for insured health care services provided to insured persons.
3. We understand that Bariatric surgery is a treatment for severe obesity in adults. Bariatric surgery restricts food intake and results in massive and rapid weight loss, typically in excess of 100 lbs. It is generally used by people who cannot lose weight by diet and exercise alone or who suffer from serious health problems related to obesity. Examples of such health problems are diabetes, heart disease, hypertension and severe sleep apnea (when breathing stops for short periods during sleep).
4. Following the Bariatric surgery you lost […] pounds and have maintained the weight loss for one year. Since the weight loss you have experienced numerous rashes and infection in the lower abdomen and under the breast area which was documented by your family physician.
5. Our research indicates that the massive and rapid weight loss following Bariatric surgery often leaves a patient with poor abdominal support, incisional hernias and significant and disfiguring excess skin. The associated symptoms of the excess skin include disabling rashes and recurrent skin infections due to the folds of the skin and sometimes functional impairment (e.g., walking impaired due to excess skin, inability to participate in sports and exercise), back strain, and cosmetic deformity. Areas affected include the arms, breasts, abdomen, back, and thighs. The folds of excess skin cannot be reduced with diet or exercise. It can only be removed surgically.
6. The surgeon who performed the Bariatric surgery sent referrals on your behalf to two plastic surgeons for excess skin removal to prevent further infection and rashes.
7. The procedures recommended by the two plastic surgeons to remove the excess skin in your case are Fleur de lis abdominoplasty combined with a mastopexy procedure.
8. The first surgeon advised you that the procedures have a medical purpose and are medically necessary to remove the excess skin resulting from significant weight loss and to prevent further rashes and infection. The second surgeon said that it was his understanding that this form of cosmetic surgery is “HST applicable”.
9. According to our research, a Fleur de lis abdominoplasty is generally for severe cases of excess skin and fatty tissue in extreme weight loss cases. This procedure has two components: a panniculectomy, which involves excess skin removal of the lower portion of the abdomen and an additional vertical component of excision above the umbilicus to excise the excess tissue in the upper abdomen.
10. Mastopexy involves the removal of excess breast tissue and raising sagging breasts. This procedure is typically performed after a woman has lost substantial weight and due to decreased breast tone.
11. You advised that the panniculectomy component of the Fleur de lis abdominoplasty was approved by OHIP for funding as the amount of excess skin on the lower abdomen and documented rashes met OHIP requirements. In addition, other aspects of the surgery, such as the anesthesiologist and the hospital operating room are to be paid for by OHIP.
12. The additional upper vertical component of the Fleur de lis abdominoplasty and the mastopexy are not covered by OHIP and the cost to you for these procedures is $[…].
13. The Fleur de lis abdominoplasty and the mastopexy are to be performed at the same time by the same surgeon.
RULING REQUESTED
You would like to know whether you are required to pay the HST on the consideration charged to you by the surgeon for the additional upper vertical component of the Fleur de lis abdominoplasty and the mastopexy procedures.
RULING GIVEN
Based on the information set out in the Statement of Facts above, we rule that the additional upper vertical component of the Fleur de lis abdominoplasty and the mastopexy procedures are exempt supplies pursuant to section 5 of Part II of Schedule V. Therefore, the HST does not apply to the consideration charged to you by the surgeon for these supplies.
This ruling is subject to the qualifications in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service. We are bound by this ruling provided that none of the above issues are currently under audit, objection, or appeal, that no future changes to the ETA, regulations or our interpretative policy affect its validity, and all relevant facts and transactions have been fully disclosed.
EXPLANATION
The general rule under the GST/HST legislation is that every recipient of a taxable supply made in Canada shall pay tax calculated at the applicable GST or HST rate on the value of the consideration charged for the supply, unless the supply is exempt from tax or a zero-rated supply (i.e., taxed at the rate of 0%).
The specific property and services that are exempt from GST/HST are listed in Schedule V to the ETA. Part II of Schedule V lists the health care services that are GST/HST exempt. The supplier does not charge tax on exempt supplies. Because the exempting provisions are tax relieving provisions, the supplier is responsible for demonstrating to the Canada Revenue Agency that the conditions for exempting a supply are met. Where the conditions are not met, the supplier is required to charge the GST/HST on the supply.
Part II of Schedule V - Health care services
Section 5 of Part II of Schedule V exempts a supply of a consultative, diagnostic, treatment or other health care service that is rendered by a medical practitioner to an individual. A “medical practitioner” for purposes of this section is defined in section 1 of Part II of Schedule V to mean a person who is entitled under the laws of a province to practise the profession of medicine or dentistry. A medical practitioner therefore includes licensed physicians and surgeons.
Section 9 of Part II of Schedule V exempts a supply (other than a zero-rated supply) of any property or service but only if, and to the extent that, the consideration for the supply is payable or reimbursed by the government of a province under a plan established under an Act of the legislature of the province to provide for health care services for all insured persons of the province. For purposes of this section, an “insured person” is defined in section 1 to have the same meaning as in the Canada Health Act. (Footnote 1) We also note that OHIP is a plan established under the Health Insurance Act pursuant to which the Government of Ontario pays for insured health care services provided to insured persons. Accordingly to the extent that a supply of a health care service is paid or reimbursed under OHIP, the supply is exempt under section 9 of Part II of Schedule V.
However, with the exception of supplies that are paid or reimbursed by a provincial or territorial health insurance plan (such as OHIP), health care services may be taxable or exempt under the provisions of Part II of Schedule V depending on their purpose, as section 1.1 and section 1.2 exclude the following from the exempting provisions of that Part, other than supplies that are exempt under section 9:
* Section 1.1 excludes a cosmetic service supply and any separate supply made in connection with a cosmetic service supply that is not made for a medical or reconstructive purpose.
* Section 1.2 excludes supplies that are not qualifying health care supplies.
“Cosmetic service supply” means a supply of property or a service that is made for cosmetic purposes and not for medical or reconstructive purposes. In this context we consider a medical purpose to mean maintaining health, preventing disease or treating, relieving or remediating an injury, illness, disorder or disability. A reconstructive purpose means surgery performed on abnormal structures of the body caused by congenital defects, developmental abnormalities, trauma, infection, tumors, or disease. Within the context of this interpretation, the word “trauma” includes trauma due to treatment such as surgery. Reconstructive surgery is generally performed to improve function, but it may also be performed to approximate a normal appearance.
Surgical and non-surgical procedures requested by an individual for aesthetic purposes, e.g., to alter or enhance normal structures of the body to improve the individual’s appearance and that have no medical or reconstructive purpose are considered to be cosmetic service supplies. Examples of common “purely” cosmetic procedures are liposuction, hair replacement procedures, botulinum toxin injections to diminish the appearance of facial wrinkles, breast augmentation surgery, and tooth whitening.
“Qualifying health care supply” means a supply of property or a service that is made for the purpose of:
* maintaining health,
* preventing disease,
* treating, relieving or remediating an injury, illness, disorder or disability,
* assisting (other than financially) an individual in coping with an injury, illness, disorder or disability, or
* providing palliative health care.
Generally, supplies deemed not to be included in Part II of Schedule V would be taxable at the applicable rate of GST/HST. This would include any separate supply provided in connection with that supply such as the services of an anaesthetist. Thus all property and services involved in the provision of a taxable supply are taxed accordingly. Therefore, when a supply of a health care service rendered by a medical practitioner is not paid for or reimbursed by a provincial health insurance plan but meets the conditions of section 5 of Part II of Schedule V, it is necessary to determine the purpose of that supply in order to determine the application of the GST/HST to the supply.
If a supply is made for more than one purpose, all of the purposes are considered when determining if the supply is made for medical or reconstructive purposes (notwithstanding any aesthetic element) and is a qualifying health care supply. Accordingly, a plastic surgery procedure rendered by a surgeon to remove excess skin and fatty tissue for the purpose of alleviating or correcting a deformity or other significant defect in appearance arising from, or directly related to, a congenital abnormality, a personal injury resulting from an accident or trauma, or from a disfiguring disease is not excluded from the exemption in section 5 of Part II of Schedule V by section 1.1 or section 1.2. When performed for this purpose, the procedure would also be considered to have a purpose of maintaining health, preventing disease, or treating, relieving or remediating a disorder or to treat a medical condition.
In contrast, a plastic surgery procedure to remove excess skin and fatty tissue where there is no abnormal body structure or symptoms causing a degree of impairment, recurrent infection, pain, etc., or to treat a medical condition would be considered to be provided for cosmetic purposes and excluded from the exempting provisions in Part II of Schedule V by sections 1.1 or 1.2.
Therefore, in order to distinguish plastic surgery performed for medical or reconstructive purposes from plastic surgery performed purely for cosmetic purposes we would need to understand the particular abnormal physical structure that the procedure is intended to correct or the symptomatology associated with the condition that the procedure is intended to treat, e.g., recurrent rashes, chronic skin infections, occurrence of chronic pain and functional impairment.
The distinction between the purposes for which a supply is made is not always clear. Generally, the Canada Revenue Agency does not make a determination as to the medical or reconstructive necessity of a particular procedure and instead relies on the views of the medical profession as well as the guidelines of the provinces, given that the provincial governments have jurisdiction over the delivery of health care services within their respective jurisdictions.
Because of the purpose tests that are applied to the exempting provisions and that the exempting provisions are tax relieving provisions, whether a cosmetic procedure is a qualifying health care supply with a medical or reconstructive purpose should be supported by evidence to demonstrate that the supply is not excluded from the exempting provisions of Part II of Schedule V by section 1.1 or section 1.2. Thus whether a procedure rendered to a particular individual has a medical or reconstructive purpose and is provided for the purpose of maintaining health, preventing disease, or treating, relieving or remediating an injury, illness, disorder or disability is a question of fact and is determined on a case-by-case basis. Accordingly, the opinion of the physician or surgeon is important in making the determination of medical or reconstructive necessity with respect to an individual’s unique circumstances.
We understand that the medical profession generally considers plastic surgery procedures involving excess skin and fatty tissue removal such as Fleur de lis abdominoplasty and mastopexy to be cosmetic surgery. Further, we note that you indicated that one of the surgeons advised you that these procedures are a form of cosmetic surgery.
However, a cosmetic surgery procedure is not automatically excluded from the exempting provisions in Part II of Schedule V. If there is a medical or reconstructive purpose and the procedure is performed by the surgeon for the purpose of maintaining health, preventing disease, or treating, relieving or remediating an injury, illness, or disorder, then the supply falls within the exemption in section 5 of Part II of Schedule V.
Based on your circumstances, we understand that the Fleur de lis abdominoplasty and mastopexy procedures were performed for reconstructive purposes to correct a defect in appearance due to excessive disfiguring skin as well as to treat the symptomatology of skin infections and rashes due to the folds of the excess skin. The folds of excess skin were the result of the massive and rapid weight loss you experienced due to the Bariatric surgery, where plastic surgery is the only way to remove the folds of excess skin.
We also note that part of the Fleur de lis abdominoplasty procedure was paid for by OHIP. Therefore, to the extent that the Fleur de lis abdominoplasty was paid for by OHIP, that part of the procedure is exempt pursuant to section 9 of Part II of Schedule V. The additional upper vertical component of the Fleur de lis abdominoplasty and the mastopexy are exempt pursuant to section 5 of Part II of Schedule V. These procedures are not excluded from section 5 because they were rendered for the purpose of correcting the resulting deformity caused by significant and disfiguring excess skin and to provide relief of rashes and infection associated with the excess skin.
Tax paid in error
Where the recipient of a supply pays the GST/HST “in error”, that person is encouraged to request a refund or credit of the tax paid from the supplier, pursuant to section 232. Paragraph 232(1)(b) provides that where a supplier has collected from the recipient an amount of tax in excess of the tax that was collectible by the supplier from the recipient, the supplier may, within two years after the day the amount was collected, refund or credit the excess amount to that recipient.
Where this is not possible, pursuant to section 261 the recipient may request a rebate of the amount paid in error directly from the Canada Revenue Agency by filing the form GST 189E, General Application for Rebate of Goods and Services Tax ,which is available under Forms and Publications from our web site. Among other criteria, to qualify for a rebate under this section, the recipient must file their rebate claim within two years from the day the amount was initially paid to the supplier.
Additional Comments
[…]. Please be advised that this ruling applies to the facts of your specific situation and as such, it is not a general application ruling.
We will consider providing information on the application of the GST/HST to cosmetic surgery procedures in a general publication in the future.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-952-6761. 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,
Susan Eastman
Health Care Sectors Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate
FOOTNOTES
1 Section 2 of the Canada Health Act, R.S.C. 1985, c. C-6 defines “insured person” to mean, in relation to a province, a resident of the province other than:
(a) a member of the Canadian Forces,
(b) [Repealed, 2012, c. 19, s. 377]
(c) a person serving a term of imprisonment in a penitentiary as defined in the Penitentiary Act, or
(d) a resident of the province who has not completed such minimum period of residence or waiting period, not exceeding three months, as may be required by the province for eligibility for or entitlement to insured health services.
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