18 July 2007 GST/HST Ruling 88917 - Application of GST/HST to amounts paid under an agreement

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:

This is in reply to your telephone call XXXXX concerning the proposed amendment announced by the Department of Finance on December 28, 2006 to exempt the services of midwives from the Goods and Services Tax (GST)/Harmonized Sales Tax (HST).

All legislative references are to the Excise Tax Act (the "ETA") and the regulations thereunder, unless otherwise specified.

Interpretation Requested

You are asking for information about the anticipated time frame for the proposed amendment to become law and when the exemption will come into force. In addition, you would also like to know how this proposed amendment will impact the ability of midwives in XXXXX to recover the GST/HST they incur on expenses related to supplies of midwifery services.

Interpretation Given

The proposed amendment to the ETA to include an exempting provision for the services of midwives is included in the Budget Implementation Act, 2007, S.C. 2007, C-52, which received Royal Assent on June 22, 2007. The ETA was amended to include midwifery services in the list of exempt supplies in section 7 of Part II of Schedule V as well as a corresponding amendment to the definition of "practitioner" in section 1 of this Part to add a person who practises the profession of midwifery for purposes of section 7.

The exemption for midwifery services applies to supplies made after December 28, 2006, which corresponds to the date of the announcement by the Department of Finance. As the amendment is now law, practitioners of midwifery services are no longer involved in commercial activities. As a consequence, they are no longer registrants for GST/HST purposes nor are they entitled to claim input tax credits relating to expenses incurred after December 28, 2006.

The definition of "practitioner" in respect of a supply of midwifery services in section 1 of Part II of Schedule V now includes a person who practises the profession of midwifery and who is licensed or otherwise certified to practise that profession in the province in which the person supplies the service. If no licence or certification is required in the province where the service is supplied, then the supplier must have the qualifications equivalent to those necessary to be licensed or certified in another province. Section 7 of Part II of Schedule V exempts from GST/HST supplies of midwifery services rendered to an individual when a "practitioner" of the service makes the supply.

Please note that the application of section 7 of Part II of Schedule V is not dependent on who pays for the supply, as this section does not require that the supply be "made to" a particular recipient. Accordingly, when a practitioner of midwifery services renders a midwifery service to an individual, this supply made by the practitioner remains exempt even in circumstances where the practitioner bills a person other than the individual (a third party) for payment of the consideration for this supply.

Prior to the amendment to the ETA, the tax status of midwifery services varied across Canada. In most provinces and territories, including XXXXX, midwifery services were taxable supplies. Further, we understand that there are situations in XXXXX where practitioners of midwifery services may supply midwifery services to the provincial government or these practitioners may receive government grants. Please note that the GST/HST is not charged on supplies made to the Government of XXXXX or on amounts received as government grants.

Because midwifery services were taxable prior to December 29, 2006, practitioners of midwifery services were involved in a commercial activity for purposes of the GST/HST. As such, they were required to be registered for the GST/HST ^[viii]1 and were entitled to claim input tax credits when they filed their GST/HST returns to recover the GST/HST that they incurred on their expenses used to make these taxable supplies.

However, because midwifery services supplied in the circumstances described above are exempt effective December 29, 2006, practitioners of midwifery services must now deregister for GST/HST purposes. In addition, practitioners of midwifery services who were registrants should take the following information into account for the time period between December 29, 2006 and June 22, 2007:

1. Because of the announcement to exempt midwifery services, registrants may have decided on their own not to collect and remit the GST/HST on their supplies of midwifery services made after December 28, 2006. Since this proposed amendment is now law, registrants that did not collect and remit GST/HST on supplies of midwifery services may continue accordingly.

2. If the registrant collected and remitted the GST/HST on supplies made after December 28, 2006, the amounts collected as GST/HST can be refunded to the recipients of the supplies in accordance with section 232. Alternatively, the recipients could apply for a rebate under section 261.

3. As noted above, input tax credits are not available for expenses incurred in providing exempt midwifery services after December 28, 2006. Registrants will be required to make adjustments for input tax credits they may have previously claimed for business expenses related to exempt supplies. Also note that there are special change-in-use rules for input tax credits claimed on capital property that may involve adjustments.

Finally, we also note that section 7 of Part II of Schedule V does not exempt all supplies made by practitioners of midwifery services; i.e., if the service is not a midwifery service rendered to an individual, the supply of that other service will continue to be a taxable 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.

To ensure that the issues concerning the exemption for midwifery services are fully addressed, including how to make input tax credit adjustments relating to the GST/HST paid or payable on capital property as well as on expenses incurred after December 28, 2006, we encourage you to contact GST/HST Rulings, XXXXX, telephone 1-800-959-8287 (service in English) or 1-800-959-8296 (service in French).

Yours truly,

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

2007/07/25 — RITS 90193 — Section 156(1) Election: Change of Legal Name