Please note that the following document, although correct at the time of issue, may not represent the current position of the Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence.
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
XXXXX
XXXXX
XXXXX
XXXXX
Case Number: 101768
Attention: XXXXX
March 10, 2009
Subject:
GST/HST RULING
Supplies made by XXXXX to XXXXX
Dear XXXXX:
Thank you for your letter of XXXXX, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to supplies made by XXXXX to XXXXX.
All legislative references are to the Excise Tax Act (ETA) and the regulations thereunder, unless otherwise specified.
Statement of Facts
We understand the facts as follows:
1. XXXXX is in the business of supplying computerized axial tomography (CT) and magnetic resonance imaging (MRI) diagnostic services and has been granted licences by the XXXXX to provide such services to the public through XXXXX facilities located in XXXXX.
2. XXXXX has been granted separate licences for the operation of each facility.
3. XXXXX has also entered into an equal number of service agreements with the XXXXX to provide CT and MRI diagnostic services to the public, for which the XXXXX will remunerate XXXXX.
4. On XXXXX and XXXXX, XXXXX was granted such licences and entered into such service agreements to provide CT and MRI diagnostic services through XXXXX facilities (Facilities) located in XXXXX, respectively.
5. From that time until XXXXX, XXXXX made supplies of CT and MRI diagnostic services through the Facilities.
6. The supplies of CT and MRI diagnostic services supplied to the public by XXXXX through the Facilities were made on the order of a medical practitioner in all instances.
7. On XXXXX, XXXXX entered into an XXXXX with XXXXX, whereby it sold, assigned and transferred the licences issued to it by the XXXXX for the operation of the Facilities to XXXXX These licenses are listed in XXXXX of this agreement.
8. Pursuant to the XXXXX, all billings for imaging services rendered at the Facilities on or after the closing date of XXXXX or other closing date as determined by the parties belong to XXXXX and XXXXX will remit all payments for such billings received by the XXXXX to XXXXX.
9. The XXXXX also provides that as of the opening of business on the closing date, XXXXX will enter into separate subleases with XXXXX for each of the Facilities. The rent charged by XXXXX to XXXXX will be based on the rent, including taxes and operating costs that XXXXX pays to the head landlord.
10. XXXXX remains the operator of the remaining XXXXX facilities in XXXXX.
11. On XXXXX, XXXXX also entered into a XXXXX (Agreement) with XXXXX to manage the provision of CT scans and MRI services at the Facilities, including the general operation and management thereof. This Agreement refers to XXXXX as the "Service Provider" and XXXXX as the "Operator".
12. Under the Agreement, the Operator XXXXX is entitled to provide CT scans and MRI services to the public according to the terms of the XXXXX agreements. The Operator has engaged and retained the Service Provider XXXXX to perform CT scans and MRI services at the Facilities and the actions and services that are constituent elements thereof and to operate and maintain the Facilities in accordance with standards established by the XXXXX, with the terms of the Licenses and with the terms and conditions hereof. The scope of services performed by the Service Provider are enumerated in XXXXX and include:
(a) Provision of efficient and competent staff to perform CT scans and MRI services and to operate the Facilities;
(b) Quality assurance and quality management programmes to ensure compliance with standards established by the XXXXX to minimize radiation risks and maximize quality of diagnostic information;
(c) Provision of imaging equipment necessary to provide CT scans and MRI services and to operate the Facilities;
(d) Oversight and administration of the Operator's relationship with the XXXXX, including billing to the XXXXX pursuant to the terms of the XXXXX agreements;
(e) Preparation, maintenance of medical records and submission of documents or records for use in programs administered by the XXXXX;
(f) All administration, bookkeeping, accounting and reporting relating to the provision of CT scans and MRI services at the Facilities, including reporting and records;
(g) Cleaning and janitorial supplies and services; and
(h) All other actions necessary for the operation of the Facilities and the provision of CT scans and MRI services to the public.
13. Under the Agreement, XXXXX, as the Operator of the Facilities, will be the lessee of the Facilities, as well as the equipment within the Facilities used by XXXXX.
14. Under the Agreement, XXXXX, as the Service Provider, will select, train and employ at the Facilities such number of employees as necessary. All employees at the Facilities, including employees performing CT scans and MRI services, will be employees of XXXXX. The supervision and control of employees, as well as all compensation and benefits, is the sole responsibility of XXXXX.
15. You advised that on XXXXX, XXXXX entered into an agreement with XXXXX, whereby it assigned to XXXXX the service agreements it entered into with the XXXXX for the provision of CT and MRI diagnostic services to the public through the Facilities.
16. Effective XXXXX, XXXXX commenced making supplies of CT and MRI diagnostic services through the Facilities.
17. The supplies of CT and MRI diagnostic services through the Facilities are made by XXXXX to the public on the order of a medical practitioner in all instances.
18. Members of the public requesting CT or MRI diagnostic services through the Facilities must provide an order from a medical practitioner to receive these services.
19. XXXXX will have the right to install and maintain signs displaying its name outside each of the Facilities, notwithstanding the fact that XXXXX is the Operator of the Facilities. However, XXXXX must be identified as the licensee under the licenses on all signage.
20. XXXXX will pay XXXXX a monthly "Services Fee" for the services provided, which are described in Fact 12.
Ruling Requested
You would like to know whether the services supplied by XXXXX, which are described in Fact 12, to XXXXX under the Agreement are exempt under section 10 of Part II of Schedule V.
Ruling Given
Based on the facts set out above, we rule that the services supplied by XXXXX, which are described in Fact 12, to XXXXX under the Agreement are taxable because they are elements of a single composite supply under a general contract for the operation and maintenance of the Facilities. As explained below, this supply is not exempt under section 10 of Part II of Schedule V.
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
Section 10 of Part II of Schedule V exempts a supply of a prescribed diagnostic, treatment or other health care service rendered to an individual if made on the order of:
• a medical practitioner or practitioner; or
• a registered nurse authorized under the laws of a province to order such a service if the order is made within a nurse-patient relationship.
Please note that this section was amended to include prescribed diagnostic services that are ordered by registered nurses. This amendment was announced by the Minister of Finance on February 26, 2008. This amendment received Royal Assent on June 18, 2008 and it applies to supplies made after February 26, 2008. Thus prior to February 27, 2008, prescribed diagnostic services for individuals were taxable when ordered by a registered nurse.
For purposes of section 10 of Part II of Schedule V, a prescribed health care service is described in the Health Care Services (GST/HST) Regulations (Regulations) to mean a laboratory, radiological or other diagnostic service generally available in a health care facility and it includes the administration of drugs, biologicals or related preparations provided in conjunction with these diagnostic services. However, a service related to the provision of a surgical or dental service that is performed for cosmetic purposes and not for medical or reconstructive purposes is excluded from the Regulations.
The exemption in section 10 of Part II of Schedule V is limited to the services described in the Regulations. The phrase "laboratory, radiological or other diagnostic services generally available in a health care facility" in the Regulations is held to mean a test, study or investigative and analytical procedure, together with the report of findings, used to assist in the determination of a disease that are of the type generally available in a health care facility (a hospital). These services are laboratory diagnostic services such as in vitro diagnostic testing, serological testing, urinalysis, and microscopic analysis; radiology and other diagnostic imaging services such as X-ray, CT scans, MRI, mammography and ultrasound; and diagnostic services such as fluoroscopy, echocardiography, electrocardiography, and electromyography.
As you noted, the first step in determining the tax status of the transaction made between XXXXX and XXXXX under the Agreement is to determine whether the various elements enumerated in the Agreement are regarded as a single supply or multiple supplies. This determination is made pursuant to the common law principles of single supply and multiple supplies.
The common law principles of single supply and multiple supplies are described in GST/HST Policy Statement P-077R2, Single and Multiple Supplies. In applying these principles, one must consider factors such as the interrelationships among the various elements of the transaction as well as the purpose of a transaction and the needs of the customer. The distinction between whether an agreement is in relation to a transaction involving a single supply or multiple supplies is important where some goods or services would be taxable at 5% or 13% and some would be exempt from the GST/HST if supplied separately.
Please note that in deciding questions pertaining to the liability of a supplier to collect the GST/HST, the manner in which parties to transactions choose to label themselves or to label the supplies does not necessarily govern. Generally, the ETA applies to the effects produced by contracts. What must be done is to evaluate the legal form of the transaction and the legal relationships and obligations between the parties based on the evidence of written contracts and all applicable facts to determine the character of the transaction and render a decision accordingly.
We agree with your conclusion that the Agreement is a transaction involving a single supply. However, we find that the substance of the Agreement represents a transaction involving a single composite supply of the operation and maintenance of the Facilities. Our finding is based on careful consideration of the facts including the obligations of XXXXX under the Agreement, XXXXX being the licensee in respect of the provision of diagnostic services, the legal relationship between XXXXX and XXXXX, as well as the scheme of the ETA and common law principles of single supply and multiple supplies.
The characterization of XXXXX supply requires identifying its elements. The elements of this supply include the performance of CT scans and MRI services, in addition to human resource activities including selecting, training and employing staff, providing equipment, management and administrative services such as preparing financial statements and budgets, bookkeeping, accounting, reporting, and cleaning and janitorial services necessary to operate and maintain the Facilities. The purpose and economic reality of the Agreement is for XXXXX to supply all the necessary goods and services to operate and maintain the Facilities. There is more than a diagnostic service rendered to an individual paid for in the Agreement. The management and administrative elements are of substantial relevance in the general operation and maintenance of the Facilities, which is what XXXXX is purchasing. Their value leads to the conclusion that the management and administrative elements are not minor or ancillary to diagnostic services nor are they inputs to a diagnostic service rendered to an individual.
As you indicated, XXXXX of the Agreement provides that XXXXX XXXXX Thus we agree with your statement that this clause indicates that the primary intention of the Agreement is for the day-to-day operation of the Facilities by XXXXX.
Under the ETA a composite supply is not defined by any one of its elements, and in our view it would be arbitrary to do so. Rather, a composite supply is defined by the sum of its elements. In the case at hand, the various actions and services are elements of the supply of something new that is not a prescribed diagnostic service rendered to an individual. The single composite supply made by XXXXX is taxable because the Agreement is a general contract for the operation and maintenance of the Facilities.
Accordingly, we do not agree with your suggestion that the supply made by XXXXX is that of a prescribed diagnostic service that is exempt under section 10 of Part II of Schedule V and that the services supplied by XXXXX to XXXXX share the same fundamental elements as the diagnostic services provided by XXXXX for which it receives funding from the XXXXX As support for your suggestion, you noted that operators of facilities that are licensed under the XXXXX are funded for costs associated with the provision of licensed services, either on a fee-for-service basis or under an approved annual budget. The XXXXX payment of such costs is authorized under
XXXXX which provides that the XXXXX may pay all or part of the capital costs or operating costs of XXXXX health facility or of the costs of the services provided in XXXXX health facility according to the method of payment approved by the XXXXX.
The nature of the supplies made by XXXXX to XXXXX is not comparable to the nature of XXXXX activities that are funded by the XXXXX for diagnostic services provided to the public. The authority XXXXX under which the XXXXX funds operators of facilities for the costs of licensed services does not serve to characterize XXXXX supplies made to XXXXX nor is it determinative that XXXXX is making a supply of a prescribed diagnostic service to XXXXX. Rather, the nature of the supply made by XXXXX is determined with reference to the Agreement, which describes what it is contracted to supply to XXXXX as well as the legal form of the transaction and XXXXX legal relationship with XXXXX. As explained above, such a determination also considers the scheme of the ETA and the common law principles of single supply and multiple supplies.
In conclusion, the facts are determinative that XXXXX role is to provide the staffing, equipment, management and administrative services so that XXXXX may provide diagnostic services to the public. The performance of CT scans and MRI services are an essential part but nonetheless only a component part of what is, as a matter of economic reality, a single composite supply under a general contract for the operation and maintenance of the Facilities by XXXXX.
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
Municipalities and Health Care Services Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate
UNCLASSIFIED
Email this Content