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
[Addressee]
Case Number: 183170
Dear [Client]:
Subject: GST/HST RULING
Tax status of health-related services
Thank you for your letter of [mm/dd/yyyy], concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to the supplies of health-related services made by […](The Corporation). We apologize for the delay in our response.
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 facts to be:
1. […][The Corporation operates in Ontario].
2. The Corporation is registered for GST/HST.
3. The Corporation is a supplier of various health services.
4. All of the Corporation’s services are completed at the Corporation’s facilities.
5. The Corporation requires all individuals to have a referral from their physician in order to receive any of the Corporation’s services.
6. The Corporation employs technicians and other staff. It does not employ any physicians or other medical practitioners. The Corporation seeks out reading physicians as needed.
7. Reading physicians attend the facilities of the Corporation to monitor all tests that require the presence of a physician. The reading physicians additionally may attend the Corporation’s facilities to interpret the results of the tests completed by the Corporation.
8. The Corporation is engaged in the supply of certain health care services which may be fully covered under the Ontario Health Insurance Plan (OHIP) including: […]
The Corporation performs these particular services primarily for the purpose of diagnostic, treatment, relieving or remedying, maintenance and/or prevention of disease.
9. The Corporation has a group billing number which allows it to submit billings to OHIP on behalf of the reading physicians for all of the medical and diagnostic services rendered to individuals. The reading physicians, who are lawfully entitled to the entire payment for the diagnostic services, have provided direction to the Ministry of Health and Long-Term Care (MOHLTC) to forward all OHIP payments for the supply of the insured diagnostic services to the Corporation directly.
10. The fees for diagnostic services that are insured under the OHIP (insured services) are comprised of both a professional component and technical component, as legislated by OHIP. The elements of the professional component and the technical component have been defined separately under the Health Insurance Act for the purposes of setting the billing rates for services.
11. A document published by the MOHLTC, titled “Schedule of Benefits — Physician Services under the Health Insurance Act (December 22, 2015 (Effective March 1, 2016))”, lists the specific elements for the professional and technical components for diagnostic and therapeutic procedures.
The Schedule lists the following elements for the professional component:
A. Providing clinical supervision, including approving, modifying and/or intervening in the performance of the procedure where appropriate.
B. Performance of any clinical procedure associated with the diagnostic procedure which is not separately billable.
C. Where appropriate, post-procedure monitoring, including intervening except where this constitutes a separately billable service.
D. Interpreting the results of the diagnostic procedure.
E. Providing premises for any aspect(s) of A and D that is (are) performed at a place other than the place in which the procedure is performed.
The elements of the technical component are:
A. Preparing the patient for the procedure.
B. Performing the diagnostic procedure(s).
C. Making arrangements for any appropriate follow-up care.
D. Preparing and providing records of the results of the procedure to the interpreting physician.
E. Discussion with, and providing information and advice to, the patient or patient's representative, whether by telephone or otherwise, on matters related to the service.
F. Preparing and transmitting a written, signed and dated interpretative report of the procedure to the referring physician.
G. Providing premises, equipment, supplies and personnel for all specific elements of the technical and professional components except for the premises for any aspect(s) of A and D of the professional component that is(are) not performed at the place in which the procedure is performed.
12. The professional fee portion of the OHIP billing is sent by the Corporation to the reading physicians, and the technical fee portion is retained by the Corporation.
13. The Corporation is also engaged in the supply of similar health care services which are not always covered under OHIP (uninsured services) and which instead may be requested by a physician and paid for through a third party (e.g., Blue Cross, insurance companies, employer, individual directly) including Ambulatory blood pressure monitoring. The Corporation performs the services for the purpose of diagnostic, treatment, relieving or remedying, maintenance and/or prevention of disease.
14. The services supplied by the Corporation that are not insured under OHIP are billed to the third party (Blue Cross, insurance companies, employers, etc.) by the Corporation directly. These billings include both the professional and technical fees.
15. Services supplied by the Corporation and rendered to individuals that are not insured by OHIP or requested by a third party are billed directly to the individual. […].
16. An individual has no ability to substitute or eliminate the various components of the diagnostic assessments ordered.
17. The diagnostic services in the context of the Corporation’s insured services are a compilation of several elements inter-dependent on each other. More specifically, the diagnostic supply includes:
1. Providing the premises and all equipment, supplies, personnel, and the other necessary elements;
2. Preparing the individual patient which includes attaching electrodes and monitoring of the patient and equipment during the procedures;
3. Performing the test, study or analytical procedure including all required clinical procedures associated with the diagnostic service
4. Providing supervision including the monitoring and intervening during the performance of the test, study or analytical procedure along with quality control of each element of the activities;
5. Monitoring and intervening as required following the completion of the test, study or analytical procedure;
6. Compiling, summarizing and providing the records of the results of the test, study or analytical procedure;
7. Providing information and discussions with the individual patient on matters related to the test, study or analytical procedure;
8. Preparing and transmitting the written, signed and dated interpretive report of the diagnostic service to the referring medical practitioner;
9. Interpreting the results, study or analytical procedure (generally the only step in the diagnostic process completed solely by the reading physician).
18. You stated that of the […][nine] steps listed above, the Corporation principally performs […][eight]. Each individual step is not a diagnostic service. A diagnostic service is the aggregate of these elements. The interpretation of the results as performed by the reading physician can only occur if the Corporation supplies its services. While the interpretation is a crucial component of the work, it is not the only component and it cannot transpire without first having the other elements concluded.
19. There are no written contracts for services; that is, there are no written contracts for services between the Corporation and the reading physician, and no written contracts between the Corporation and the patients (or third parties or referring physicians).
RULING REQUESTED
You would like to know:
1. whether the supply of services that are insured under OHIP and provided by the Corporation is part of a single supply of a diagnostic and therapeutic procedure rendered to an individual;
2. whether the supply of those services is exempt pursuant to section 10 of Part II of Schedule V.
RULING GIVEN
Based on the facts set out above, we rule that
1. the supply of services provided by the Corporation that include the services by the reading physician and that are insured under OHIP, is a single supply of a diagnostic service rendered to an individual;
2. the supply of diagnostic services by the Corporation is exempt pursuant to section 10 of Part II of Schedule V subject to the application of sections 1.1 and 1.2 of Part II of Schedule V.
EXPLANATION
Generally, all supplies of property and services made in Canada are taxable unless an exemption from the GST/HST applies. Taxable supplies are supplies made in the course of a commercial activity and may be taxable at the rate of 0% (zero-rated supplies), 5%, 13%, or 15% on the value of the consideration for the supply depending on the province in which the supply is made. Zero-rated supplies are included in Schedule VI. Exempt supplies are not subject to the GST/HST and are included in Schedule V.
Part II of Schedule V to the ETA provides that certain health care services are exempt from the GST/HST. Specifically, section 10 of Part II exempts a supply of a prescribed diagnostic, treatment or other health care service rendered to an individual if the supply is made on the order of a “medical practitioner” or a “practitioner”; 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; or a person that is entitled under the laws of a province to practise the profession of pharmacy and is authorized under the laws of the province to order such a service, if the order is made within a pharmacist-patient relationship. The terms “medical practitioner” and “practitioner” are defined in section 1 of that Part.
Section 2 of the Health Care Services (GST/HST) Regulations provides that for the purposes of section 10 of Part II of Schedule V, the following services are prescribed:
(a) laboratory, radiological or other diagnostic services generally available in a health care facility; and
(b) the administration of drugs, biologicals or related preparations in conjunction with the provision of services included in paragraph (a).
The application of section 10 of Part II of Schedule V is limited by sections 1.1 and 1.2 of that Part. Sections 1.1 and 1.2 deem supplies that are made for cosmetic purposes and supplies that are not qualifying health care supplies to not be included in Part II of Schedule V.
Read together, the provisions provide that the exemption under section 10 of that Part is dependent upon the purpose for which the supply is made. For the exemption to apply, the supply has to be made for at least one of the enumerated qualifying health care supply purposes and not be a cosmetic service supply.
The supply made by the Corporation is composed of several elements that are described in the facts above. The first step in determining the tax status of the supply made by the Corporation would be to determine if the Corporation is making a single supply or multiple supplies consisting of each of the elements described.
Single/Multiple Supplies
Where a transaction consists of several elements, there may be a single supply or multiple supplies. This distinction is important, for example, in cases where a combination of elements is supplied, some of which would be exempt for GST/HST purposes and some of which would not if supplied separately. It is a question of fact whether the person is making a single supply or multiple supplies.
The characterization of a transaction as a single supply or multiple supplies considers the interrelationships among the various elements of the agreement, the purpose of the agreement, the needs of the customer, and the economic reality of the transaction. There is a single supply where one or more elements constitute the supply and any remaining elements serve only to enhance the supply. Where the essential elements are part of a single composite supply, that single supply cannot be artificially split into separate supplies.
Multiple supplies occur when one or more of the elements can sensibly or realistically be broken out. Conversely, two or more elements are part of a single supply when the elements are integral components; the elements are inextricably bound up with each other; the elements are so intertwined and interdependent that they must be supplied together; or one element of the transaction is so dominated by another element that the first element has lost any identity for fiscal purposes.
When performing an analysis, it is important that the analysis be confined to the transaction at issue, rather than referring to other possible transactions containing the same or similar elements. This process should not involve artificially splitting something that commercially is a single supply.
For a supply with several components, an analysis would consider how the components work together, the needs of the recipient, and identify which components are ancillary or merely optional accessories or attachments.
Although concluding whether a single supply or multiple supplies are made always depends on the facts surrounding a particular transaction, including the terms of any relevant agreements, 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.
P-077R2 lists the following questions that may assist in this determination:
* Is the property or service provided by two or more suppliers?
* Is there more than one recipient?
* What did the supplier provide for the consideration received?
* Is the recipient made aware of the elements (in detail) that are part of the package?
* In the context of the particular transaction, does the recipient have the option to acquire the elements separately or to substitute elements?
In addition, 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 in an agreement or on an invoice to conclude that a supplier is making multiple supplies of different goods and/or services.
The key factor to consider in making the determination as to what, and how many, supplies are made in a particular situation is the need/purpose of the client when requesting the Corporation's services. From a supplier point of view, one must consider what the Corporation is being requested to do or to provide that satisfies the request or need of the client.
In this case, it is the CRA’s view that the Corporation is making a single supply of services rendered to the individuals. From the individual’s point of view, they go to the clinic to get tested and that includes a reading of the results. According to the facts, each of the procedures provided by the Corporation includes an involvement of a reading physician. Therefore, we can conclude that the Corporation is making a single supply.
The next step in determining the tax status of the supply made by the Corporation is to characterize the supply.
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 the supply is made on the order of a “medical practitioner” or a “practitioner”, as those terms are defined in section 1 of Part II of Schedule V; 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; or a person that is entitled under the laws of a province to practise the profession of pharmacy and is authorized under the laws of the province to order such a service.
A diagnostic service contains several constituent elements. These constituent elements generally include both technical and professional components. The CRA would evaluate supplies made by the Corporation with reference to the following constituent elements of a diagnostic service to determine whether section 10 of Part II of Schedule V would apply:
* Providing the premises, equipment, supplies and personnel for all elements of the technical and professional components;
* Preparing the patient for the diagnostic service;
* Performing the test, study or analytical procedure, including any clinical procedure associated with the diagnostic service;
* Providing clinical supervision, including approving, modifying and intervening in the performance of the test, study or analytical procedure and quality control of all elements of the procedure;
* Monitoring and intervening if necessary after the test, study or analytical procedure;
* Preparing and providing records of the results of the test, study, or analytical procedure to a medical practitioner;
* Interpreting the results of the test, study or analytical procedure, which is generally performed by a medical practitioner;
* Discussion with the patient on matters related to the diagnostic service; and
* Preparing and transmitting a written, signed and dated interpretative report of the diagnostic service to the referring medical practitioner or practitioner.
Each individual element of a diagnostic service is not a separate diagnostic service. The diagnostic service is the aggregate of all of these elements.
For the insured service scenario, the Corporation performs most of these elements. The element of “Interpreting the results of the test, study or analytical procedure”, is performed by a reading physician who is contracted by the Corporation for those services. The services provided by the reading physician constitute an input to the Corporation’s services, allowing it to provide diagnostic services to their clients.
The service provided by the Corporation is thus a cumulative aggregation of the service elements performed by its employees and the reading physician. This aggregate service provided by the Corporation encompasses all the elements of a “diagnostic service” and is thus characterized as a “diagnostic service”.
The supply of those diagnostic services meet the conditions for exemption under section 10 of Part II of Schedule V.
Qualifying health care supplies and cosmetic service supplies
Where a supply by the Corporation meets the exemption criteria of section 10 of Part II of Schedule V, it also has to satisfy the criteria of sections 1.1 and 1.2 of Part II of Schedule V. Section 1.1 of Part II of Schedule V generally provides that a supply that is, or is in respect of, a cosmetic service supply is not exempt, even if the supply otherwise meets the criteria of an exempting section in Part II of Schedule V. Section 1.2 of Part II of Schedule V generally provides that a supply that is not a qualifying health care supply is similarly not exempt, even if the supply otherwise meets the criteria of an exempting section in Part II of Schedule V .
Section 1.1 of Part II of Schedule V specifically provides that, “for the purposes of this Part, other than section 9, a cosmetic service supply and a supply, in respect of a cosmetic service supply, that is not made for medical or reconstructive purposes are deemed not to be included in this Part.” This section clarifies that a cosmetic service supply, and a supply of any property or service in respect of a cosmetic service supply that is not made for medical or reconstructive purposes, are not considered basic health care and are excluded from the exempting provisions (other than section 9) in Part II of Schedule V.
The term “cosmetic service 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 cosmetic purposes and not for medical or reconstructive purposes.”
Section 1.2 of Part II of Schedule V specifically 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 this Part.”
The term “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.”
Supplies of property or services are not “qualifying health care supplies” if they are not made for at least one of these purposes. A supply of a property or a service may be a qualifying health care supply if it is performed for at least one of the listed purposes, even if it is performed, as well, for other purposes that are not listed.
For more information on qualifying health care supplies, refer to GST/HST Notice 286, Draft GST/HST Policy Statement, Qualifying Health Care Supplies and the Application of Section 1.2 of Part II of Schedule V to the Excise Tax Act to the Supply of Medical Examinations, Reports and Certificates.
ADDITIONAL INFORMATION
You mentioned that the professional fee portion of the OHIP billing is sent by the Corporation to the reading physicians, and that the technical fee portion is retained by the Corporation.
In the absence of documentation relating to this aspect of the relationship between the Corporation and the reading physicians, we provide the following information that may assist you in determining the application of the GST/HST related to the retaining by the Corporation of the technical fee portion.
The Corporation has a group billing number which allows it to submit billings to OHIP on behalf of the reading physicians for all of the medical and diagnostic services rendered to individuals. The reading physicians have provided direction to the MOHLTC to forward all OHIP payments for the supply of the insured diagnostic services to the Corporation directly.
The reading physicians are lawfully entitled to the entire payment for the diagnostic services as stated in section 15 of the Health Insurance Act and can direct the payment to another entity (Footnote 1) . This include the professional fee portion and the technical fee portion. The consideration for the supply of the reading physicians’ services has been paid by OHIP even though the payment of money was directed to the Corporation.
We note that there might be supplies made by the Corporation to the reading physicians as an amount of money, corresponding to the technical fees, is retained by the Corporation. The Corporation provides various health services at its facilities. It requires the reading physicians’ services to provide diagnostic services. In return, the reading physicians assist the Corporation by benefitting of the right to provide their services to the Corporation’s clients and the use of its installation. This could point to a supply made by the Corporation to the reading physicians for a consideration that corresponds to the amount of technical fees.
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 rulings given in this letter provided that: none of the issues discussed in the rulings 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 additional information provided herein.
If you require clarification with respect to any of the issues discussed in this letter, please call Chantal Desrosiers, Manager, directly at 343-552-7297. 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,
Chantal Desrosiers
Manager
Health Care Sectors Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate
[…]
FOOTNOTES
1 RSO 1990, c H.6. Section 16.1 provides that:
16.1 (1) A physician or a practitioner may direct that payments for services performed by the physician or practitioner and to which the physician or practitioner is lawfully entitled may be directed to such person or entity as may be prescribed and in such circumstances and on such conditions as may be prescribed, including such requirements and other matters with respect to directions as may be prescribed.
(2) Repealed.
(3) The entitlement to payment for services performed by a physician or a practitioner is that of the physician or practitioner and not that of the person or entity to which the physician or practitioner has directed that such a payment be made.
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