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
Case Number: 196473a
Subject: GST/HST RULING
Supply of dental care services
This letter is further to the GST/HST ruling provided to you in the letter of April 9, 2019 […]. That ruling letter concerned the application of the goods and services tax/harmonized sales tax (GST/HST) to the supply of dental care services. As a result of a review of that letter, we wish to clarify some of the information provided in that letter. We apologize for any inconvenience these changes may cause. For your convenience, we are reissuing the letter in its entirety. This amendment replaces and supersedes the original letter and is effective the date of this amended letter.
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
We understand the following from your fax of [mm/dd/yyyy] and telephone conversations of [mm/dd/yyyy]:
1. […] (the Dentist) is a dentist practicing in […][Province A].
2. […][The Regulatory Body for the profession of Dentistry in Province A] has the Dentist listed as a General Practitioner (Footnote 1) at […][Clinic X] in […][Province A].
3. According to our records, the Dentist is the sole shareholder of […](the Company). The Company is registered for GST/HST purposes […]. Our records also indicate that [Clinic X] is an account name used to reference the same Company.
4. The Company itself is not listed with […][the provincial Regulatory Body] as a practitioner.
5. There is no written contract or agreement between the Dentist and the Company as the Dentist is the sole shareholder.
6. The Dentist states that he is the only dentist practicing at the clinic as an independent contractor and that there are no other independent contractors operating at the clinic.
7. The Dentist is not listed on the payroll of the Company. Instead, he receives dividends from the Company at least once or twice a year in relations to his ownership of shares in the Company.
8. The Company employs a number of other part-time employees such as dental hygienists and dental assistants. The Dentist himself undertakes the employment process and hires the employees at the dental clinic. The Dentist is not paid any income for his staffing services.
9. The Dentist does the day-to-day bookkeeping of the Company, and pays an external accountant for end-of-year financial statements and tax returns.
10. The Dentist dictates his schedule at his own discretion and is not obligated to supply services by the instruction of the dental clinic.
11. The Company owns the facility and equipment from which the Dentist operates.
12. The Company bills the individual patients for the dental care services that the Dentist has rendered to them.
13. Billings to the provincial health plan for eligible patients are billed with the Dentist’s name as the provider of the dental service but with the Company’s name on the invoice.
14. No percentage is withheld in exchange for using the Company’s facility and equipment since the Dentist owns the dental clinic.
15. The dental care services provided by the Dentist and the Company include diagnostic, consultative, treatment and other health care services.
16. The Dentist states that he does not render any cosmetic dental services to individual patients.
You would like to know whether or not the payout you receive from your dental corporation for the services you render would constitute consideration for a taxable supply and would therefore be subject to GST/HST.
Based on the facts set out above, we rule that:
1. The supply of the dental care services made by the Dentist to the Company is an exempt supply pursuant to section 5 of Part II of Schedule V and is not subject to the GST/HST;
2. The dividends received by the Dentist as a shareholder of the Company are an exempt supply of a “financial service” and are therefore not subject to the GST/HST.
Medical practitioner and Dental service
Section 5 of Part II of Schedule V provides that a supply of a consultative, diagnostic, treatment or other health care service that is rendered by a medical practitioner to an individual is an exempt supply, as long as it is not performed for cosmetic purposes.
Cosmetic service supplies and any supply of property and services related to cosmetic service supplies are excluded from the exempting provisions of Part II of Schedule V by section 1.1 of that Part. A cosmetic service supply, as defined in section 1, means a supply of property or a service that is made for cosmetic purposes and not for medical or reconstructive purposes. Since the Dentist offers no cosmetic dental procedures, his supply of dental services would not be that of cosmetic service supplies.
Section 1 of Part II of Schedule V defines the term “medical practitioner” to mean a person who is entitled under the laws of a province to practise the profession of medicine or dentistry. Since the Dentist is authorised to practise in [Province A] and is registered with the [the Regulatory Body for the profession of Dentistry in Province A], the Dentist is a “medical practitioner” according to Section 1 of Part II of Schedule V. Therefore, as a “medical practitioner” providing health care services, i.e. dental services, the Dentist’s services are generally exempt under section 5 of Part II of Schedule V.
Furthermore, section 5 also provides that a health care service rendered by a medical practitioner to an individual is an exempt supply regardless of the identity of the supplier of the service. Hence, in this case, regardless of whether the dental services are supplied through the Dentist’s clinic or directly by the Dentist, the exemption under section 5 would still apply. For example, if the medical practitioner is an employee of the supplier, including situations where the supplier is a corporation, the health care service rendered by the medical practitioner that is invoiced to the recipient by that supplier would be exempt.
In addition to meeting the exempting provision above, section 1.2 of Part II of Schedule V provides that for the purposes of this Part, other than sections 9 and 11 to 14, a supply that is not a “qualifying health care supply” is deemed not to be included in Part II of that Schedule. Therefore, to be included under the exempting provision in section 5, the service provided must also meet the definition of a “qualifying health care supply”.
A “qualifying health care supply” is defined in section 1 of Part II of Schedule V to mean,
“a supply of property or a service that is made for the purpose of
(a) maintaining health,
(b) preventing disease,
(c) treating, relieving or remediating an injury, illness, disorder or disability,
(d) assisting (other than financially) an individual in coping with an injury, illness, disorder or disability, or
(e) providing palliative health care.”
In this case, the supply of a dental service being rendered by a medical practitioner to an individual would fall within the definition of “qualifying health care supply” as the purpose of the service is to identify and treat dental related issues.
Based on the above, the supply of dental care services rendered by the Dentist would meet the conditions of section 5 of Part II of Schedule V to the ETA and is, therefore, an exempt supply for purposes of the ETA. As such, the consideration charged to a patient for this service is not subject to the GST/HST notwithstanding the type of remuneration the Dentist may gain in relation to rendering such exempt services.
As mentioned in the facts stated above, the Dentist receives dividend payouts once or twice a year as the only form of consideration for the work he performs for the Company. As the dividends are paid in relation to the ownership of shares, they are not treated as consideration for the supplies of services by the Dentist.
An “equity security” is defined in subsection 123(1), to mean a share of the capital stock of a corporation or any interest in or right to such a share. An equity security is a “financial instrument” as defined in subsection 123(1). The payment or receipt of money as dividends in respect of a financial instrument is a “financial service” in accordance with that definition in subsection 123(1). Supplies of financial services are exempt under section 1 of Part VII of Schedule V unless otherwise zero-rated under Part IX of Schedule VI. Since none of the zero-rated provisions under Part IX of Schedule VI apply in these circumstances, the Dentist’s receipts of dividend payouts in respect of his ownership of shares in the company throughout the year are exempt supplies of financial services.
Subsection 126(2) provides that persons are related to each other for GST/HST purposes if they are related to each other by reasons of subsections 251(2) to (6) of the Income Tax Act. Since the Dentist controls the Company because he is the sole shareholder, they are related persons in accordance with subsection 126(2). Subsection 126(1) provides that for GST/HST purposes, related persons are deemed not to deal with each other at arm’s length. As such, the Dentist and the Company may be partaking in non-arm’s length transactions. Therefore, the supply of property or service by the Company to the Dentist may be governed by the provisions of section 155 of the ETA.
Subsection 155(1) provides, in part, that where a supply is made between persons not dealing at arm’s length for no consideration or for consideration less than the fair market value at the time the supply is made, and the recipient is not a registrant acquiring the property or service for use exclusively in commercial activities of the recipient, the value of consideration is deemed to be the fair market value of the property or service at the time the supply is made.
We note that there might be services that are rendered by the Company to the Dentist. In order to determine if section 155 could apply to these transactions, if any, a ruling should be requested along with further details about such transactions. For more information on making a ruling request, refer to GST/HST Memorandum 1-4, Excise and GST/HST Rulings and Interpretations Service.
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. The additional information given in this letter is not a ruling and does not bind the CRA with respect to a particular situation. Future changes to the ETA, regulations, or the CRA's interpretative policy could affect the interpretation(s) or the additional information provided herein.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 343-553-4626. 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.
Health Care Sectors Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate
1 General Practitioner: […].