10 November 2004 GST/HST Interpretation 50220 - PROPOSED LAW/REGULATION Services Supplied by XXXXX

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.

Dear XXXXX:

I am writing in response to your letter XXXXX and to your telephone call XXXXX concerning the application of the Goods and Services Tax (GST)/

Harmonized Sales Tax (HST) to transactions to be carried on by a professional corporation.

Interpretations Requested

The professional corporation ("MedCo") will carry on its Practice by providing the services of independent contractors ("Contracting Professionals") who are registered to practise medicine XXXXX. MedCo will also engage professional corporations ("Contracting Companies") as independent contractors. These corporations will provide MedCo with the services of individuals who are registered to practise medicine in the province.

You have requested our interpretation of the application of the Excise Tax Act (the "ETA") to the following:

1) That the Contracting Companies or the Contracting Professionals and MedCo will be considered to be medical practitioners for purposes of the ETA, as defined in Schedule V, Part II, section 1.

2) That the consideration received by the Contracting Companies or the Contracting Professionals from MedCo to practise medicine as independent contractors is received for consultative, diagnostic, treatment or other health care services rendered to an individual.

3) That the consideration received by MedCo from an individual or a third party (for medical services) is received for a service rendered to an individual.

Statement of Facts

XXXXX
XXXXX

MedCo will make an application to the XXXXX to practise medicine in that province. XXXXX.

MedCo will carry on the Practice by providing professional services through the Contracting Professionals who are licensed to practise medicine XXXXX and are engaged as independent contractors to perform such activities on MedCo's behalf and the Contracting Companies engaged by MedCo as independent contractors to provide the services of individuals who are licensed to practise medicine in the province to perform such services on MedCo's behalf.

Contracting Professionals

Contracting Professionals may enter into a contractual relationship with MedCo whereby the Contracting Professional agrees to provide certain professional services required in the Practice on a per diem fee basis. The amount of the fee will be negotiated on a case-by-case basis and will vary with the level and type of professional services to be provided.

This arrangement will be evidenced by a written agreement that will provide, among other things that the Contracting Professional as an independent contractor shall provide certain professional medical services required by MedCo in the Practice and all payments from third parties in respect of services provided by the Contracting Professional for the benefit of MedCo in the Practice shall be made directly to MedCo.

Contracting Companies

XXXXX. Arrangements between MedCo and the Contracting Companies will be evidenced in writing.

Each Contracting Company shall obtain a permit from the XXXXX to practise medicine in the province prior to entering into a contract with MedCo to provide professional services.

The respective shareholder of a particular Contracting Company will be an employee of the Contracting Company and will provide professional medical services for the benefit of the Contracting Company, pursuant to the terms of the Contracting Company's contract with MedCo.

Interpretations Given

You have asked whether the Contracting Companies, the Contracting Professionals and MedCo will be considered to be medical practitioners for purposes of the ETA, as defined in Schedule V, Part II, section 1. The term "medical practitioner" is defined in section 1 of this Part as meaning "a person who is entitled under the laws of a province to practise the profession of medicine or dentistry."

XXXXX
XXXXX

It will be a question of fact as to whether MedCo, the Contracting Professionals or the Contracting Companies involved in this Practice will be medical practitioners for purposes of the ETA.

As you are aware, section 5 of Part II of Schedule V exempts from the GST/HST a supply made by a medical practitioner of a consultative, diagnostic treatment or other health care service rendered to an individual (other than a surgical or dental service that is performed for cosmetic purposes and not for medical or reconstructive purposes).

Services that maintain health, 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.

Services rendered by medical practitioners to individuals as set out in section 5 of this Part will be exempt regardless of who pays for the services. For example, where a medical practitioner makes a supply to a third party of a health care service rendered to an individual, this service is exempt of the GST/HST and no tax is collectible on the invoice billed to the third party by the medical practitioner.

We would also point out that section 9 of Part II of Schedule V provides an exemption for any property or service where the consideration for the supply is payable or reimbursed under a provincial health insurance plan.

You have requested our interpretation that consideration received by a Contracting Company or Contracting Professional from MedCo to practise medicine as independent contractors is received for consultative, diagnostic, treatment or other health care services rendered to an individual. You have also asked for an interpretation that the consideration received by MedCo from an individual or a third party (for medical services) is received for a service rendered to an individual.

As we have not been provided with specific information and documentation, including signed copies of contracts and agreements concerning the nature of the services provided by MedCo to individuals, hospitals and other third parties, it is not possible to establish whether MedCo is supplying services in these situations that would be consultative, diagnostic, treatment or other health care services rendered to an individual that would fall under the exemption in section 5 of Part II of Schedule V.

Further, as we do not have information and documentation setting out the nature of the services provided by the Contracting Professionals and Contracting Companies to MedCo, we also cannot determine whether these services will fall under the exemptions mentioned above. We can however, provide the following general comments.

As a transactional tax, the exemptions in the ETA apply on a "supply-by-supply" basis. The legislative provisions set out specific criteria that must be met in order for a particular supply to fall within those exemptions. Therefore, the tax status of a particular good or service is determined on the factual context in which the supply in question was made.

For instance, an analysis of the terms and conditions of relevant contracts or agreements is necessary to determine whether the supply satisfies the criteria set out in the ETA. A supply made by a medical practitioner under the terms of a particular agreement may not necessarily meet the criteria for the exemption in section 5 of Part II of Schedule V.

Among the factors that must be considered are the specific provisions of any contracts or agreements between the parties describing what supplies are to be made. What specific services is the practitioner supplying? Do the services provided fall within the scope of consultative, diagnostic, treatment or other health care services rendered to an individual?

Certain services provided by medical practitioners such as teaching or administrative services, are not exempt under the provisions of Part II of Schedule V to the ETA. For example, a supply made by a medical practitioner of overseeing the delivery of clinical, academic or research services is not an exempt activity that would fall under section 5 of this Part. If the medical practitioner making this supply is a registrant for GST/HST purposes, it would be required to collect and remit the tax on the consideration paid for this supply.

A medical practitioner that provides both exempt and taxable activities must make a reasonable allocation of expenses between those supplies. If the practitioner is a GST/HST registrant, it would be entitled to claim input tax credits for the GST/HST payable on the purchases used, consumed or supplied in the course of making taxable supplies for consideration.

For your information, I am enclosing a copy of GST/HST Policy Paper [P]-238, which provides additional information about the application of the GST/HST to certain payments made between parties within a medical practice.

The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the ETA, if enacted, could have an effect on the interpretation provided herein. These comments are not rulings and, in accordance with the guidelines set out in section 1.4 of Chapter 1 of the GST/HST Memoranda Series, do not bind the Canada Revenue Agency with respect to a particular situation. A copy of this publication is also enclosed.

Should you have any further questions, please do not hesitate to contact me at (613) 952-9590.

Yours truly,

Elaine Bonnah
Municipalities and Health Care Services Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate

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