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.
[Addressee]
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
Case Number: 116287
July 20, 2011
Dear [Client]:
Subject:
GST/HST INTERPRETATION
Application of GST/HST to Services Provided by Physicians
This is in reply to the letters of September 15, 2008, and June 12, 2009, [...] requesting an interpretation concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to services to be provided by physicians and medical professional corporations (MPCs) under agreements with a health authority (Authority) and a university (University).
HST applies at the rate of 15% in Nova Scotia, 13% in Ontario, New Brunswick, and Newfoundland and Labrador, and 12% in British Columbia. GST applies at the rate of 5% in the remaining provinces and territories.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
Interpretation Requested
You provided us with general information involving an Authority located in a province in Canada responsible for the planning, organization, delivery and evaluation of health services to be provided within its geographic area. The Authority owns a hospital that is affiliated with the medical school of a University. The Authority and the University enter into various service agreements with physicians and MPCs. You advised that the physicians and MPCs are entitled under the laws of the province to practise the profession of medicine. The Authority and the University have four common types of agreements with physicians and MPCs:
• Mixed Services Agreement 1 - Services provided to the Authority.
• Mixed Services Agreement 2 - Services provided to the Authority and the University.
• Single Service Agreement 3 - Services provided to the University.
• Part-Time Teaching Agreement 4 - Services provided to the University.
We understand that you would like an interpretation regarding the application of section 5 of Part II of Schedule V, which exempts from GST/HST the services of physicians in certain circumstances, within the context of these four agreements. In particular, you would like our interpretation to address the following:
1. Are the services provided by the physician to the Authority under Agreement 1 subject to the GST/HST?
2. Are the services provided by the MPC to the Authority and the University under Agreement 2 where administrative and management services only are supplied subject to the GST/HST?
3. Are the services provided by the MPC to the Authority and the University under Agreement 2 (where administrative, management and medical services are supplied; i.e., the variation to the agreement as described below) subject to the GST/HST?
4. Are the services provided by the contractor (either as an individual physician or as an MPC) to the University under Agreement 3 subject to the GST/HST?
5. Are the services provided by the physicians to the University under Agreement 4 subject to the GST/HST?
6. Would the Canada Revenue Agency's (CRA) response concerning the application of the GST/HST change under questions 1 to 5 if the Authority or University were able to link specific funding from the provincial government to the payment of non-medical related services provided under each agreement?
7. Does the CRA agree that the collection of supplies being made under Agreements 1 to 4 constitute one single supply under each Agreement? If so, does the CRA agree that where GST/HST-exempt health care services are provided under any of these agreements that the single supply made under these circumstances would be of a GST/HST-exempt health care service?
8. We were provided with undated and unsigned copies of Agreements 1 to 3 and were advised that the fact pattern intended for the fourth Agreement is as outlined in the September 15, 2008 letter. Our response to your request is below.
Background
Mixed Services Agreement 1 - Services Provided to the Authority
Under this agreement, the Authority contracts with a physician for administrative and management services, as well as medical services rendered to individual patients. The physician has agreed to provide services equalling [...] hours per year. Approximately [...] hours (60%) are medical services and the remainder (40%) is administrative and management work. The medical services include consultative, diagnostic, treatment and other health care services rendered to individuals by the physician.
The physician acts in the capacity of a Medical Department Head of a hospital operated by the Authority. The physician is responsible for the medical management of an integrated Department of Emergency Medicine (the Department), including academic and clinical work undertaken by all physicians within the Department. The physician is accountable for patient care, delivery of education programs, and facilitation of research activities of the Department. This includes services across the entire region of the Authority. You advised that in addition to being a provider of patient care, teaching and research, the physician is required to be the manager of care.
The physician is appointed to the medical staff of the Authority and is responsible for the supervision and coordination of physicians with privileges in the Department, and research and support staff engaged within the Department. Schedules [...] and [...] to the agreement outline the activities and specific responsibilities of the physician.
Schedule [...] lists the administrative duties to be performed by the physician.
• Patient care related to emergency:
Ensuring the provision of medical services in the emergency department by medical staff, residents and students through review, analysis and evaluation of the work of the members of the department;
Scheduling physicians in the emergency room (ER) departments;
Establishing, reviewing and revising policies, procedures and guidelines related to patient care; and
Providing advice on medical equipment acquisition, maintenance and disposal.
• Education and teaching:
Delivery of medical education programs in the Department;
Delivery of continuing professional learning programs of the Department in cooperation with the Division of Continuing Professional Learning;
Defining and contributing to the teaching and instructional programs of other health care programs;
Ensuring that education and teaching activities complement patient care within the Department; and
Contribute to the development of regional, national, and international networks to attract high quality clinicians, educators and students and to facilitate professional development and collaboration.
• Research:
Encourage, facilitate and support research activities of the Department;
Encourage and facilitate the acquisition of external grant funding;
Ensure that Department members follow approved research protocols and administrative procedures as required;
Support and encourage the publication of research results in journals and presentations at professional seminars; and
Promote teamwork and collaborative research activity.
• Quality management:
Coordinate the establishment of quality standards and indicators of patient care, monitor clinical performance and undertake appropriate corrective action to strive for the attainment of appropriate standards in patient care;
Ensure that the Department and its members comply with all policies, bylaws, rules and regulations, and standards established by accreditation bodies; and
Manage any complaints involving departmental members.
• Professional human resources:
Assist in the development and ongoing review of a medical human resource plan;
Recruit new members of the medical staff;
Advocate for adequate resourcing of Department members; and
Provide mentoring and annual performance evaluation of Department members.
• General management:
Participate in program planning, coordinate the implementation of new programs and services and assist in their evaluation;
Annually prepare a written report of the Department's activities;
Establish and periodically update departmental policies and procedures;
Represent the department on committees as required; and
Other duties as required.
Schedule [...] lists the medical services to be performed by the physician relating to:
• Management, treatment and disposition of all patients of the Department;
• Arranging for the admission, consultation and disposition on patients;
• Arranging follow-up of patients with family physicians and specialists;
• Reviewing diagnostic test results;
• Taking regular calls and giving advice to physicians from referring facilities;
• Ensuring documentation is maintained on patients;
• Providing medical direction to ambulance personnel; and
• Participating in the development and implementation of departmental quality of care initiatives.
For the provision of these services, the Authority agrees to pay the physician an annual amount paid in monthly instalments at the end of each month (plus any future increases to the [...] of the physician payment schedule that may be negotiated). The physician agrees not to submit an account for payment to the province's medical insurance program for emergency services provided under the agreement or accept payment from other parties for these services. However, the physician may provide services at locations outside the Authority and collect billings for the services. The agreement may be assigned to a professional corporation established by the physician.
Mixed Services Agreement 2 - Services Provided to the Authority
The Authority contracts with an MPC for a Medical Department Head to provide administrative and management services. The MPC may subcontract with other physicians, as approved by the Authority, to provide select duties. The MPC and the subcontractors devote the equivalent of [...] days per week for administrative duties, during which time no other payment of services will be collected. In addition, you advised that the MPC may provide medical services to patients in the Medical Department as required provided the provision of these services will not interfere with its required administrative and management duties. Medical services include consultative, diagnostic, treatment and other health care services rendered to individuals by a physician.
In consideration for the provision of services, the MPC shall receive an annual amount paid in monthly instalments at the end of each month and the MPC agrees that any approved subcontractor is to paid directly from this amount, pursuant to a signed [...]. These payments are made only for the administrative and management services provided by the MPC under the agreement. Any medical services rendered to patients in the Medical Department are billed separately by the MPC to the province's medical health insurance plan.
This position is responsible for the academic and clinical work undertaken by all physicians within the Medical Department in the College/Faculty of Medicine of the University and the Authority and is accountable for all patient care, delivery of education programs, and facilitation of research activities of the Medical Department. In addition to being a provider of patient care, teaching and research, the Medical Department Head is required to be a manager of care.
The Medical Department Head is appointed to the medical staff of the Authority and to the College/Faculty of Medicine of the University, and is responsible for the supervision and/or coordination of physicians with privileges in the Department, all members of the Medical Department holding non-clinical appointments in the College/Faculty of Medicine, and research and support staff engaged within the Department. Major responsibilities are listed in Schedule [...] to the agreement and include:
• Managing the provision of patient care related to the Department:
Ensuring the provision of medical services in the Department by medical staff, residents and students through review, analysis and evaluation of the work of members of the Department;
Establishing, reviewing and revising policies, procedures and guidelines related to patient care; and
Providing advice on medical equipment acquisition, maintenance and disposal.
• Education and teaching:
Delivery of medical education programs in the Department;
Delivery of continuing professional learning programs of the Department in cooperation with the [...];
Defining and contributing to the teaching and instructional programs of other health care programs;
Ensuring that education and teaching activities complement patient care within the Department; and
Contribute to the development of regional, national, and international networks to attract high quality clinicians, educators and students and to facilitate professional development and collaboration.
• Research:
Encourage, facilitate and support research activities of the Department;
Encourage and facilitate the acquisition of external grant funding;
Ensure that department members follow approved research protocols and administrative procedures as required;
Support and encourage the publication of research results in journals and presentations at professional seminars; and
Promote teamwork and collaborative research activity.
• Quality management:
Coordinate the establishment of quality standards and indicators of patient care, monitor clinical performance and undertake appropriate corrective action to strive for the attainment of appropriate standards in patient care;
Ensure that the Department and its members comply with all policies, bylaws, rules and regulations, and standards established by accreditation bodies; and
Manage any complaints involving departmental members.
• Professional human resources:
Assist in the development and ongoing review of a medical human resource plan;
Recruit new members of the medical staff;
Advocate for adequate resourcing of Department members; and
Provide mentoring and annual performance evaluation of Department members.
• General management:
Participate in program planning, coordinate the implementation of new programs and services and assist in their evaluation;
Annually prepare a written report of the Department's activities;
Establish and periodically update departmental policies and procedures;
Represent the Department on committees as required; and
Other duties as required.
Under a variation of this agreement, the MPC would not receive separate compensation for the medical services rendered to patients in the Department. Rather, the consideration payable to the MPC would, in addition to the administrative and management services also compensate the MPC for any medical services. Any medical services provided under a variation of this agreement could be separately identified and accounted for by the Authority.
Single Service Agreement 3 - Services Provided to the University
The University, through its College/Faculty of Medicine, carries on a medical resident training program to train physicians. The University requires management services for the program and contracts with a contractor (either an individual physician or an MPC) for the provision of the management and instructional services required by the University. The contractor may enter into other contractual arrangements with the University or other parties or otherwise derive income from the delivery of physician or other services, provided they do not interfere or conflict with the provision of services under the agreement.
In consideration of the services to be provided pursuant to this agreement, the contractor will be paid an amount inclusive of all taxes for the period [mm/dd/yyyy] to [mm/dd/yyyy]. Where the University requests or approves the contractor to travel or attend meetings or conferences, the University reimburses the contractor for costs incurred. The contractor shall invoice the University as services are provided, but not more frequently than [...] per month and not less frequently than [...]. The activities and specific responsibilities of the physician are outlined in Schedule [...] to the agreement:
• Overall development and management of the medical resident program;
• Chair a Resident Training Committee and arrange for regular scheduling;
• Recruitment of new residents and development and provision of informational and promotional materials to prospective residents;
• Maintenance of required records for each resident;
• Advocate for residents as necessary and meet individually and collectively with residents to review their progress and evaluations;
• Conduct an annual review of the training program and provide a written report to the appropriate College/Faculty of Medicine official;
• Maintain and operate an appropriate appeals process related to academic matters;
• Participate in the [...] Committee of the College/Faculty of Medicine;
• Provide all documentation for internal program review, participate in the program review of other programs, facilitate internal and external reviews of the program, and implement recommendations from internal and external reviews;
• Serve on national committees of the [...], develop and monitor national resident training objectives, and monitor national documents for accreditation and training requirements;
• Maintain awareness and understanding of provincial regulations regarding licensure of medical residents in the training program and interpret relevant policies for medical resident training; and
• Maintain awareness and understanding of current local, regional, and national information about medical human resources in the practice and provide related information and advice regarding educational resources in education and training programs.
Part-Time Teaching Arrangement Agreement 4 - Services Provided to the University
You advised that there are no written agreements currently in place; however, the fact pattern outlined in your letter of September 15, 2008 represents all services provided under this agreement. We understand that the College/Faculty of Medicine at the University has arrangements with physicians to provide part-time teaching services involving:
• Preparing and presenting lectures, seminars, presentations, and tutorial discussions to students;
• Marking written exams;
• Presenting and evaluating oral and clinical exams;
• Scheduling assignments;
• Providing patient care activity in a clinic setting that is observed and participated in by students;
• Providing patient care activity in the hospital ward rounds that is observed and attended by students;
• Demonstration of knowledge and procedural skills in anesthesia and intensive care in the operating theatre on a one-to-one basis;
• Providing instruction, assistance, and informal consultation to students when reading medical imaging in the hospital setting; and
• Attending meetings with students where presentation of journal articles is made.
The university pays the physicians in respect of two elements: the teaching element, which relates to the academic component of the agreement; and the overhead element, which relates to costs of maintaining an office or clinic (rent, utilities, support staff, etc.). Any medical services rendered by the physicians to a patient in conjunction with these part-time teaching services would be billed by the physicians directly to a provincial health insurance plan.
Interpretation Given
The general rule in section 165 is that every recipient of a taxable supply made in Canada shall pay tax calculated at the rate of 5%, 12%, 13% or 15% (depending on the place of supply) on the value of the consideration for the supply unless the supply is exempt or zero-rated. The tax rate in respect of a zero-rated supply is 0%. An exempt supply is a supply that is included in Schedule V and a zero-rated supply is a supply that is included in Schedule VI.
Pursuant to section 5 of Part II of Schedule V, a supply of a consultative, diagnostic, treatment or other health care service rendered to an individual by a medical practitioner is exempt. For purposes of this Part, a "medical practitioner" is defined to mean a person who is entitled under the laws of a province to practise the profession of medicine or dentistry. Services that maintain health or that prevent disease or treat an injury, illness or disability of an individual, such as physical examinations supplied by physicians within the scope of their medical professions to address a medical symptom or condition of their patients, would generally meet the criteria of section 5 of Part II of Schedule V.
Certain services provided by physicians are not exempt under the provisions of Part II of Schedule V. For instance, a supply made for cosmetic purposes and not for medical or reconstructive purposes is excluded from the exempting provisions pursuant to section 1.1 of Part II of Schedule V, except to the extent that the consideration for the supply is payable or reimbursed by a provincial health insurance plan established to provide for health care services of all insured persons of the province. In addition, section 5 of Part II of Schedule V does not extend to other professional services provided by physicians, such as management, administrative, teaching services and overseeing the delivery of clinical, academic or research services of a health care or educational institution. If the physician making a supply of these services is a registrant for GST/HST purposes, the physician would be required to collect and remit the tax on the value of the consideration for this supply.
Please note that we have not addressed your questions in the order in which you set them out in your letter. Rather, for purposes of this interpretation of the relevant provisions of the ETA and related administrative policy, we have addressed your questions as noted below.
Single Supply or Multiple Supplies? - Question 7
You asked whether the collection of supplies being made under each Agreement 1 to 4; i.e., the obligations of the physicians in each agreement, constitutes one single supply. You also asked if there is a single supply that includes an exempt health care service, if that supply, as a whole, can be characterized as an exempt health care service.
Where an agreement provides for the provision of a number of services or property and services, it must first be determined whether a single supply or multiple supplies are being provided under the agreement. This distinction is important in cases where a combination of services and/or property is supplied by a person under an agreement, some of which would be taxable and some of which would be exempt if supplied separately. In this type of situation it is a question of fact whether the person is making a single supply or multiple supplies. GST/HST Policy Statement P-077R2, Single and Multiple Supplies, provides additional information on determining whether a single supply or multiple supplies are being provided. The interrelationships among the various elements of the agreement, the purpose of an agreement, the needs of the customer, and the economic reality of the agreement are among the factors considered to determine whether an agreement provides for a single supply or multiple supplies.
If it is determined that a single supply is being provided, then the predominant element of that supply must be established to determine the nature of the supply. If the predominant element of the single supply is determined to be a health care service, then the supply as a whole will be considered a health care service. We note that only the agreements with the Authority include, or contemplate including, an element involving the provision of medical services rendered to patients by physicians for which the exemption in section 5 of Part II of Schedule V is an issue. For those agreements that do not include such an element (i.e., agreements that do not include taxable and exempt services) a single supply versus multiple supplies analysis would not be an issue.
In applying the guidelines set out in Policy Statement P-077R2 to the services provided under these agreements, an important question to consider is what has been supplied for the payment made. Policy Statement P-077R2 also explains that the way in which the consideration for a transaction is set out does not in itself determine whether there are one or more supplies. A single consideration does not automatically mean that there is one supply. Equally, separately identified consideration for certain elements do not necessarily mean that there are two or more supplies. Thus one cannot rely solely on the breakdown of charges on an agreement or invoice to conclude that a supplier is making multiple supplies of different goods and/or services. Rather, where two or more elements are so closely linked that they form objectively and from an economic point of view a whole transaction, all those elements constitutes a single composite supply for purposes of the GST/HST.
It is our view that the obligations of the physicians and the MPCs under all four agreements suggests that the substance of the agreements represents a single composite supply made by the physicians or the MPCs. The objective of the agreements involves services to be rendered by physicians, having specialized skills or expertise. These agreements essentially provide for a fairly broad range of administrative and management services to be supplied by the physicians and MPCs to the Department of the hospital operated by the Authority, and management and instructional or part-time teaching services for the University.
The various activities of the physicians are intended to achieve a single objective and all of the activities undertaken by the physicians form an integral part of the physician or MPC's obligations where not one activity can be described as an end in itself. The physician or MPC undertakes all activities set out in the agreements and the agreements do not provide any option to acquire or substitute any element separately. The economic reality of these agreements is for the physician or MPC to provide all the services and the agreements provide for a single consideration in respect of all activities undertaken by the physician or MPC to fulfill their obligations. In our view, it would be arbitrary to segregate the various activities undertaken by the physician or MPC as consisting of separate supplies.
You would like to know that if CRA agreed that the collection of supplies being made under all four agreements constitutes a single supply under each agreement, where an element of an agreement included the provision of health care services rendered to an individual by a physician, would this element characterize the supply as an exempt supply for purposes of the GST/HST. Please note that generally, under the ETA a composite supply is not defined by any one of its elements. However, in characterizing a supply with several elements, it is necessary to consider whether there is a dominant element and whether any other elements are minor or ancillary in order to identify the essential character of the supply. The dominant element and any ancillary elements of the supply under any agreement must be determined on a case-by-case basis by examining the relevant facts.
Agreements with the Authority - Questions 1, 2, and 3
Agreement 1 made between the physician and the Authority provides for a mix of services where a significant element of this agreement involves the provision of medical services rendered to patients of the Department in the hospital operated by the Authority. Under this agreement the physician has agreed to provide [...] hours per year where [...] hours are medical services and the remainder is medical administrative work.
Although a significant element of Agreement 1 is the provision of medical services by a physician, this Agreement is not for the provision of medical services only and the administrative and management obligations of the physician are not minor or ancillary to the medical services nor are they "inputs" to the provision of medical services. Further, the value of the consideration payable to the physician under this agreement would not be representative of the fair market value of medical services only - the administrative and management elements have a significant value and in fact all the elements of this agreement are of substantial relevance to the objective of the Authority in managing the Department of the Hospital.
The provisions of this agreement indicate that the health authority is acquiring a single composite supply from the physician of administrative, management and patient care services. The purpose and economic reality of this agreement is for the physician to undertake all the activities necessary to operate the Department at the hospital. Therefore, it is our view that the medical services are not the dominant element of this agreement and further, there is likely no single dominant element. The activities undertaken by the physician in fulfilling his or her obligations under the agreement are beyond the scope of section 5 of Part II of Schedule V. As no exemption applies to this supply the single composite supply made under this agreement by the physician to the Authority would be taxable.
Agreement 2 does not include an element consisting of the provision of medical services rendered to individuals by the MPC; rather the MPC is responsible for managing the care provided by other physicians who will receive compensation from another party. You mentioned in your letter that the MPC may provide medical services to patients in the Department of the hospital as required, provided the provision of these services does not interfere with the MPC's required administrative and management duties. However, the MPC is paid an annual amount, paid in monthly instalments, only for the administrative and management services provided under the agreement. Any medical services rendered to patients are to be billed separately by the MPC to the patient's medical health insurance plan. It is our view that this agreement provides for a single composite supply and there is no "exempt" element to this supply made by the MPC. Therefore, this supply would be taxable.
If Agreement 2 were to include the provision of medical services rendered to an individual by a physician; i.e., if the Authority were to compensate the MPC for any medical services which could be separately identified and accounted for by the Authority, for the same reasons as given for Agreement 1 this element would likely not characterize the supply as an exempt supply for GST/HST purposes. As explained above, any provision of medical services would represent an element of a single composite supply. The same rationale as discussed in Agreement 1 would apply to any variation of Agreement 2; i.e., while certain activities performed by the MPC may include a health care service rendered to an individual, this agreement is not solely for the provision of health care services rendered to individuals by a physician.
As noted in Policy Statement P-077R2 a breakdown of the consideration payable in respect of a transaction is not demonstrative of separate supplies. This variation of the agreement would indicate that the health authority is acquiring a single composite supply from the physician of administrative, management and patient care services. The physician's obligations under the agreement would be beyond the scope of section 5 of Part II of Schedule V and the single composite supply made under such a variation of the agreement by the physician to the Authority would be taxable.
Agreements with the University - Questions 4 and 5
Agreement 3 essentially provides for management and instructional services relating to a medical resident training program operated by the University. Agreement 4 deals solely with part-time teaching and related services provided to the University where any patient care activity is to be observed and attended by students. Any medical services rendered to a patient by a physician in conjunction with the part-time teaching services would be billed by the physician to a provincial health insurance plan or under other arrangements. Professional services provided by physicians such as management, administrative, instruction and teaching services are taxable supplies.
Accordingly, whether an analysis of these agreements results in a finding that they provide for a single composite supply or multiple supplies, the services provided by the physicians under these agreements would be taxable and the GST/HST would apply to value of the consideration payable to the physician or MPC for these services.
Other Comments - Question 6
You also asked that if the Authority and the University could link specific funding from a provincial government to the payment of non-medical services provided under each agreement, would this impact the application of the GST/HST. Your question is unclear and thus we are unable to answer this question. However, please note that generally the source of money used by a recipient to purchase goods and services does not determine the application of the GST/HST to the supply made to the recipient by the supplier. For instance, the ETA does not exempt a supply made to a recipient based on a recipient's source of money used to pay for the supply.
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 Canada Revenue Agency with respect to a particular situation. Future changes to the ETA, regulations, or our interpretative policy could affect this interpretation.
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
Municipalities and Healthcare Services Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate
UNCLASSIFIED
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