25 September 2006 GST/HST Ruling 52094 - XXXXX Grass

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:

The purpose of this letter is to respond to your ruling request made on behalf of the XXXXX on the application of the Goods and Services Tax ("GST")/Harmonized Sales Tax ("HST") to supplies of IMEs made by physicians, and to advise you that the Canada Revenue Agency has just released the Policy Statement P-248, The application of the GST/HST to the supply of an independent medical examination ("IME") and to other independent assessments.

This policy statement can be found under the GST/HST Policy Statements link at (http://www.cra-arc.gc.ca/menu/GTPP_200-e.html) on the Canada Revenue Agency ("CRA") Web site. The policy represents a change in the CRA's position on the application of the GST/HST to sections 5 and 7 of Part II of Schedule V to the Excise Tax Act (the "ETA") and it describes the circumstances under which IMEs and other independent assessments will be exempt from the GST/HST under these provisions as well as section 2 of that Part. The effective date of the policy is June 8, 2001, which is the date the Tax Court of Canada issued its decision regarding Riverfront Medical Evaluations Ltd. v. Canada ("Riverfront").

In situations where the CRA has issued specific interpretations that differ from this policy, the policy should be applied to the affected person(s) on the earlier of the day the CRA has made the public aware of this policy or informs the person(s) in writing of the application of the tax to their transaction(s). However, the CRA may apply the policy retroactively, where this would be beneficial to a person and the person asks that the policy be applied retroactively.

Also note that effective July 1, 2006, the rate of the GST has been reduced from 7% to 6% and the rate of the HST from 15% to 14%. The new rates apply to supplies for which the GST/HST is paid on or after July 1, 2006, without having become payable before that date. Specific transitional rules apply to certain supplies, for example, real property. You may refer to Reduction in the Rate of the GST/HST - Questions and Answers at (http://www.cra-arc.gc.ca/agency/budget/2006/gstrateqa-e.html) for more information on the transitional rules for the reduction of the GST/HST rate.

Now that the policy has been released, we are pleased to provide the ruling requested in your letter XXXXX. We note that in a letter XXXXX, you outlined the activities involved in the provision of IMEs. On the basis of XXXXX submission and attachments, our understanding of the facts of the supply in question is set out below.

All legislative references are to the ETA and the regulations therein, unless otherwise specified.

Statement of Facts

1. XXXXX who supply IMEs as part of their professional activities.

2. Physicians with a wide spectrum of training and experience supply IMEs. There is no particular sub-specialty certification related to the provision of IMEs.

3. XXXXX supply IMEs at various sites, such as medical offices, designated assessment centres, multi-disciplinary clinics, hospitals and even hotel rooms.

4. Some of XXXXX are owners and directors of multi-disciplinary assessment centres that supply a wide variety of third party examinations, utilizing the skills of other health professionals that include psychologists, chiropractors, physiotherapists, occupational therapists, vocationologists, and kinesiologists.

5. An IME results from a request by a third party ^[xiii]footnote 1, for an expert opinion concerning an individual who is of interest to the third party on any number of issues relevant to that party's needs. The primary objective of the IME is to provide information to facilitate decision making of the requesting party and to fulfill other administrative duties. For instance, third parties use IMEs to determine an individual's entitlement to some kind of benefit or as a basis for a legal proceeding.

6. The physician's duty toward the individual who is being examined is XXXXX.

(a) Medical examiners provide the examinee (the individual) with the identity of the third party who requested the IME and provide details as to the scope and purpose of the IME.

(b) Medical examiners advise the examinee of the difference between their role and the role of a treating physician, and the medical examiner does not provide treatment or give advice to the examinee. The exception is if the medical examiner identifies an unexpected significant clinical finding that is likely to jeopardize the life or health of the examinee. In this case, the medical examiner will advise the examinee, the referral source or the examinee's treating physician.

Rulings Requested

XXXXX would like to know:

1. Is the supply of an IME to a third party, as outlined in the facts listed above, that is supplied by a physician subject to the GST/HST?

2. Does the application of the GST/HST to the supply of an IME change if the supplier is another type of health professional, with the provision that no therapeutic relationship is established or any treatment rendered to the subject individual?

3. Does the location of the examination component of the IME, whether completed by a physician or other health care professional, alter the applicability of the GST/HST?

Rulings Given

Based on the information provided, we rule that:

1. The supply of an IME to a third party made by a physician is exempt from GST/HST pursuant to section 5 of Part II of Schedule V.

2. The supply of an independent assessment made by another type of health professional that is a "practitioner" as defined in the ETA (i.e., a practitioner acting in the course of the practice of optometry, physiotherapy, chiropody, podiatry, osteopathy, audiology, speech therapy ^[xiv]footnote 2, occupational therapy, or psychology) is exempt from the GST/HST pursuant to section 7 of Part II of Schedule V.

3. The location of the examination component of a supply described in section 5 or 7 of Part II of Schedule V does not alter the applicability of the GST/HST; i.e., the supply remains exempt.

These rulings are subject to the qualifications in GST/HST Memorandum 1.4, Goods and Services Tax Rulings. We are bound by these rulings provided that none of the above issues is currently under audit, objection, or appeal, that no future changes to the ETA, regulations, or our interpretative policy affect its validity, and all relevant facts and transactions have been fully disclosed.

Explanation

Sections 5 and 7 of Part II of Schedule V exempt from GST/HST certain supplies made by a "medical practitioner" and a "practitioner", as those suppliers are defined in section 1 of that Part. In particular, section 5 exempts a supply made by a medical practitioner of a consultative, diagnostic, treatment or other health care service rendered to an individual. In addition, section 2 of that Part exempts a supply made by the operator of a "health care facility" of an "institutional health care service" if the service is rendered to a patient or resident of the facility. The ETA defines "health care facility" and "institutional health care service" for purposes of this Part.

We understand that it is XXXXX view that there is no traditional or therapeutic physician-patient relationship and no duty of care when a physician or other health professional supplies an IME and further, that the XXXXX does not consider the examination or the report that flows from an IME to constitute medical care. XXXXX outlines how an IME or other third party evaluation differs from the provision of medical care. XXXXX refers to the following case law that has provided an interpretation and opinion on the role of the independent physician conducting an IME and commented on the physician's freedom from the fiduciary responsibilities that would flow from the therapeutic physician-patient relationship:

•   Lowe v. Guarantee Co. of North America [2003] O.J. No. 3345 (ONT.SCJ);

•   Fabian v. Marglies [1985] 53 O.R. (2d) AT 381 (ONT.HCJ); 53 O.R. (2d) 580 at 384 (ONT.CA);

•   Johnson v. State Farm Mutual Automobile Insurance Co. [1998] O.J. No. 3139 (Ont. Gen. Div.); and

•   X (minors) v. Bedfordshire County Council [1995] 3 All, E.R. 353 at 383, (Eng.HL).

You advised that it is made clear to all the parties involved that neither the examination nor the report that flows from an IME constitutes the provision of care to the individual who is assessed or interviewed nor will treatment be provided to the individual, and that this understanding is an integral part of the informed consent required before the IME takes place. You also advised that the location where the activities relative to the IME take place is irrelevant; i.e., an IME supplied in a hospital or a treatment facility does not alter the non-therapeutic nature of an IME. Generally, the report is sent only to the third party that requested it and the IME supplier has no duty to provide care or advice, nor share his or her findings or opinions with the individual or any one other than the requesting third party.

We carefully considered the views of XXXXX and the information you provided on the activities involved in the supply of IMEs by physicians. We acknowledge that XXXXX may not consider an IME to be a health care service or the provision of medical care. However, the decisions rendered by the Tax Court of Canada and the Federal Court of Appeal in Riverfront required the CRA to review its interpretation of the application of sections 5 and 7 of Part II of Schedule V. The Tax Court of Canada found that because an element of the IME included a physical examination of an individual by a physician at the facility operated by the Appellant and that this examination created a physician-patient relationship, the examination constituted medical care. As a consequence, the Appellant's facility fell within the definition of "health care facility" in the ETA and the individuals who were examined were patients of the Appellant. Flowing from this finding, the IMEs supplied by the Appellant were exempt supplies described in section 2 of Part II of Schedule V.

The interpretation of section 2 and the revised interpretation of sections 5 and 7 of Part II of Schedule V, outlined below, are based on consideration of the decisions in Riverfront, the exemptions in the ETA that apply to supplies made by operators of health care facilities, medical practitioners and practitioners, as well as the information provided by stakeholders on the issue.

Section 2 of Part II of Schedule V

You asked whether the application of the GST/HST is altered by the location of the examination component of an IME and as indicated above location is not a factor for sections 5 and 7 of Part II of Schedule V. However, location is a factor for section 2 of that Part, which exempts a supply of an institutional health care service rendered to a patient or resident of a health care facility where the operator of that facility supplies these services to them within its facility.

A "health care facility" is defined in paragraph 1(a) of Part II of Schedule V as a facility, or part thereof, operated for the purpose of providing medical or hospital care. The CRA considers medical care to mean care rendered by physicians; i.e., care provided to patients by medical practitioners entitled under the laws of a province to practise the profession of medicine, and would consider the following factors to determine the purpose for which a facility is operated:

•   The operator contracts with physicians to provide medical care to patients of the facility;

•   Physicians provide medical care in the operator's facility; and

•   The facility has consultation and examination rooms and equipment and supplies to support the provision of medical care.

In a multi-disciplinary facility, only the part of that facility's operations where medical care is provided to patients or care that is related to, or in support of, medical care falls within the definition of "health care facility". Services provided by other practitioners, such as dentists, physiotherapists, chiropodists, chiropractors, occupational therapists, and psychologists, are not included within the meaning of medical care. Thus, the part of a multi-disciplinary facility operated to provide care by other practitioners is not a health care facility for ETA purposes.

The importance of the location of the examination component of an IME flows from the definition of "institutional health care service". This definition describes services rendered by a person that are provided in a health care facility and the operator of that facility remunerates the person for these services. The definite article "the" in paragraph (h) of this definition links the location where the person's services are rendered to the operator's facility. Thus, services rendered by a person remunerated by the operator of a health care facility fall within the definition only when the person's services are provided in the operator's facility. When the operator of the health care facility supplies these services, they will fall within the exemption in section 2 of Part II of Schedule V if they are rendered to a patient of the operator's facility. This exempting provision therefore does not apply to services rendered outside the supplier's health care facility. Further, it does not apply to supplies that are not medical care, as such supplies do not fall within the meaning of "institutional health care service" since these services are not provided in a "health care facility"; i.e., that part of the supplier's facility is not a "health care facility" as defined for ETA purposes.

Section 5 of Part II of Schedule V

For purposes of the ETA, a supply made by a physician of examining an individual or reviewing an individual's medical records is a health care service rendered to an individual. The element of a health care service is present in an IME when the physician is applying his or her medical expertise and is making a decision regarding this information on the individual's requirement for ongoing or future medical treatment. That the IME is rendered to an individual is demonstrated by a physical examination, interview with the individual or a review of the findings in the individual's medical records as to diagnosis, prognosis or treatment relating to the individual, and the physician's attention, custody and judgment with respect to the individual or the individual's medical records.

Section 7 of Part II of Schedule V

This provision exempts a supply of an optometric, chiropractic, physiotherapy, chiroprodic, podiatric, osteopathic, audiological, speech therapy, occupational therapy or psychological service rendered to an individual when the supply is made by a practitioner of the service.

A supply made by a practitioner of assessing an individual or reviewing an individual's health records is an optometric, chiropractic, physiotherapy, chiroprodic, podiatric, osteopathic, audiological, speech therapy, occupational therapy, or psychological service rendered to an individual for purposes of this exempting provision. The element of a service enumerated in this exempting provision is present in an independent assessment when the practitioner is applying his or her professional expertise to the independent assessment and is making a decision based on this information on the individual's requirement for specific treatment. That the independent assessment is rendered to an individual is demonstrated by a physical examination, interview with the individual, or a review of the findings in the individual's health records as to diagnosis, prognosis or treatment relating to the individual, and the practitioner's attention, custody and judgment with respect to the individual or the individual's health records.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (613) 952-6761.

Yours truly,

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

2006/09/05 — RITS 54497 — Tax Status of Memberships