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: 112247
July 8, 2009
Subject:
GST/HST INTERPRETATION
GST/HST Policy Statement P-238
Dear XXXXX:
Your letter of XXXXX, addressed to the XXXXX concerning the Canada Revenue Agency (CRA) Policy Statement P-238, Application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to Payments Made Between Parties Within a Medical Practice Organization, was forwarded to us for reply. Our reply is also further to the correspondence between you and the XXXXX GST/HST Rulings Centre in XXXXX.
Policy statements are not substitutes for the law nor do they change the application of the law. Rather policy statements issued by the CRA are administrative instruments created to illustrate how certain provisions in the Excise Tax Act (ETA) may apply in particular situations, for example, a business practice of a specialized segment of taxpayers. As such, policy statements are set within a narrow context and if a person's situation is not described within the selected facts addressed in a policy statement, then the administrative policy will not apply to that person.
While a policy statement does not apply to everyone, the basic concepts in the ETA on which it is based do apply to all taxpayers. For instance, where the facts demonstrate that there is a supply and consideration is payable for that supply, the GST/HST is payable unless, for example, the supply is listed in Schedule V (exempt supplies) or Schedule VI (zero-rated supplies).
HST applies at the rate of 13% in the participating provinces of Nova Scotia, New Brunswick and Newfoundland and Labrador. GST applies at the rate of 5% in the remaining provinces and territories.
All legislative references are to the ETA unless otherwise specified.
Interpretation Requested
We understand that you would like clarification regarding the difference between Sample Rulings #5 and #6 from Sample Ruling #7 in Policy Statement P-238. You would also like to know whether a written agreement is the deciding factor that determines whether there is a taxable supply made between the parties.
Interpretation Given
Policy Statement P-238 was created to address questions raised by medical practitioners involving certain business practices. In some cases, the medical practitioners share office space within a single facility in which they practice their respective professions. These business practices include principal/locum and principal/associate relationships where payments are made to a principal by a locum or an associate. The payments may be calculated as a set fee or as a percentage of the locum or associate's billings.
If there is an agreement to provide specific goods and services in exchange for money, the money would constitute consideration for a supply unless the agreement could be classified as a contract for employment. Whether there is a supply made in exchange for a payment would be determined on the factual context in which the payment is made, which would include the conduct of the parties and the terms and conditions of the payment as well as any documentation that further describes the purpose of the payment.
The Policy Statement offers guidance on when payments made between medical practitioners under certain identified business practices would not be viewed as consideration for a supply for purposes of administering the GST/HST legislation.
Sample Rulings #5 and #6
These examples illustrate a business practice where a locum medical practitioner acts on behalf of a principal medical practitioner when the principal is temporarily away from the office. For instance, when the principal is away during periods of vacation, attendance at seminars, illness, or maternity leave, he or she requires the services of the locum to cover for him or her during these periods of absence.
It is understood that generally, medical practitioners bill the provincial health insurance plan for compensation for the health care services they render to their patients. There are two examples to address situations where the provincial health insurance plan would compensate the locum directly (#5) and where the principal would receive the compensation from the health insurance plan in respect of the services rendered to the principal's patients by the locum (#6).
These examples are meant to illustrate situations where the factual context in which the payment is made and the purpose of the payment by the locum to the principal would suggest that the payment is a transfer of money and not consideration for a supply. The conduct of the parties would indicate that they have not entered into an agreement for the locum to set up his or her independent practice at the principal's office. Rather the parties have agreed that the locum will temporarily provide treatment to the principal's patients on behalf of the principal while he or she is absent. These services are to be rendered at the principal's office where the locum is merely standing in for the principal.
In these situations, the CRA would consider that there is only one supply of a health care service rendered to the patient in respect of the billing to the provincial health insurance plan for purposes of administering the GST/HST legislation and this supply is made by the medical practitioner who in fact billed the plan. Thus to fall within the administrative policy, the party that receives the compensation from the provincial health insurance plan would account for the full amount as revenue for GST/HST purposes. The revenue that this party transfers or shares with the other medical practitioner would result from a private agreement made outside the GST/HST legislation for which no supply is made in exchange.
For instance, in sample ruling #5 assume that the locum bills under his or her own billing number the provincial health insurance plan $100 for a particular service he or she rendered to a patient. The $100 fee would represent the value of the consideration for the locum's services for which he or she received compensation from the provincial health insurance plan. The locum agrees to share $40 of this fee with the principal. Under the administrative policy, the locum would account for the $100 as his or her revenue for GST/HST purposes. Neither party would account for the $40 the locum shares with the principal because the ETA is based on the concept of persons making supplies and under the administrative policy this share would not be regarded as consideration for a supply made by the principal to the locum.
Sample Ruling #7
This example illustrates a business practice where the basic concepts in the ETA would apply. That is, where there is a supply and consideration is payable for that supply, the GST/HST is payable on the value of that consideration unless the supply is listed in Schedule V or VI.
In this situation, the associate medical practitioners establish their independent medical practices at a clinic that is operated by a principal medical practitioner, who owns the clinic and all its assets. The associates enter into an agreement with the principal pursuant to which they agree to pay for the use of the clinic and related medical equipment as well as for the provision of administrative services. In addition, the associates direct the principal to submit on their behalf their fee-for-service billings to the provincial health insurance plan. On instructions from the associates, the provincial health insurance plan will deposit their fees to the principal's bank account. The associates have agreed that the principal will retain a percentage of their billings in exchange for providing them with the use of the clinic, related medical supplies and administrative services and return to them the remaining portion.
An agreement between a principal and an associate that provides for goods and services to be provided to the associate in exchange for a payment made to the principal would be indicative of a supply made by the principal. Whether the agreement between the parties is written or verbal, in this situation the conduct of the parties and the purpose of the payment indicate that they have entered into an agreement pursuant to which the associates have established their independent practices at the clinic and will receive goods and services from the principal that they require to conduct their practices. As such the payments made by the associates to the principal would not fall within the administrative policy as illustrated in sample rulings #5 and #6. Rather, the payments would represent consideration for a supply and that supply could be subject to the GST/HST, regardless of the method chosen to make the payments.
The portion of the associates' provincial health insurance income that the principal retains is a charge to the associates for the provision of the goods and services. This charge is consideration received by the principal in respect of a supply that may include property and services such as accounting, payroll, secretarial and reception services, equipment, heat, light, telephone, etc. Please note that the operator of a medical clinic that provides such property and services to medical practitioners is considered to be involved in a commercial activity for purposes of the ETA. Accordingly, if a registrant, the principal (operator of the clinic) would have to collect and remit the GST/HST on the consideration paid by the associates, which is the portion of their provincial health insurance plan income not returned to them.
For instance, in sample ruling #7 assume that an associate bills the provincial health insurance plan $100 for a particular service he or she rendered to a patient. The associate agrees that the principal will bill the provincial health insurance plan on his or her behalf and retain $40 of this fee. The associate accounts for the $100 as his or her revenue for GST/HST purposes because the $100 fee would represent the value of the consideration for the associate's services for which he or she received compensation from the provincial health insurance plan. We also note that in entering into this agreement with the principal, the associate has decided what happens to his or her provincial health insurance plan income after it has been earned. Further, the agreement demonstrates that the associate does not bill the principal in respect of his or her services rendered to the patients and is therefore not remunerated by the principal for these services.
Under the basic concepts of the GST/HST the associate would account for the $40 payment made to the principal as an expense and the principal would account for the $40 as revenue from a taxable supply made to the associate. Pursuant to section 221, the principal (provided he or she is a registrant) would be required to collect the tax payable under Division II of the ETA by the associate, who would be the recipient of the taxable supply made by the principal.
Additional comments
The GST/HST is a transactional tax and for each transaction we would have to determine whether a supply is being made. You asked about whether a written agreement is the deciding factor that determines whether there is a taxable supply made by the principal. The terms of a written agreement is one factor that the CRA will consider in determining whether a payment is consideration in respect of a taxable supply.
Whether the agreement results in a supply made in exchange for a payment would be determined by evaluating the legal form of the transaction and the legal relationships and obligations between the parties based on evidence such as the conduct of the parties, the terms and conditions relating to the payment, as well as any documentation that further describes the purpose of the payment and all applicable facts. Therefore, with respect to the issue in question, the application of the GST to the principal's activities would be based on the transactions and the principal's legal relationships with, and obligations to, the locums and associates and with the patients.
If the facts are determinative that the principal's role is to provide the premises, equipment, supplies and administrative services to the locums or associates in order that the locums or associates may provide medical services to their patients, these facts would be determinative of a supply made by the principal to the locums or associates. Where the facts demonstrate that there is a supply made by one medical practitioner to another and consideration is payable for that supply, the GST/HST may be payable if that supply is taxable. Accordingly, Policy Statement P-238 does not supersede the facts of anyone's situation and the CRA will not assume a payment is not consideration for a supply without reviewing the facts.
The foregoing comments represent our general views with respect to the subject matter of your request. These comments are not rulings and, in accordance with the guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, do not bind the CRA with respect to a particular situation. Future changes to the ETA, regulations, or our interpretative policy could affect this interpretation.
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
UNCLASSIFIED
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