3 April 2007 GST/HST Ruling 85543 - Independent Medical Examinations and Related Services

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:

Thank you for your letter XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to supplies of occupational therapy services.

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

Statement of Facts

On the basis of your letter and our telephone conversation XXXXX our understanding of the transactions and the facts is as follows:

1. You are registered to practise the profession of occupational therapy with the College of Occupational Therapists XXXXX.

2. You wholly own and operate a professional health corporation, XXXXX, which is also registered to practise the profession of occupational therapy with the College of Occupational Therapists XXXXX.

3. XXXXX contracts with other registered occupational therapists for occupational therapy assessments of individuals. These individuals are generally insurance claimants and you advised that these assessments are "independent" occupational therapy assessments because they are done at the request of a third party, i.e., an insurer, and they do not include any therapeutic or treatment component of the individuals.

4. The independent occupational therapy assessments are understood to be expert opinions supplied to insurers following a health assessment of an individual who is of interest to the insurer. An occupational therapist assesses an individual and provides a report of findings, which often involves responding to a set of questions posed by the insurer. These assessments are not insured services under any provincial or territorial health insurance plan.

5. XXXXX notifies the individuals, whom you have referred to as "clients", by letter about their appointments for assessments at which time a consent form is provided for their perusal. The consent is usually obtained at the time of the assessment to ensure that the client fully understands the form. Background medical documentation from a variety of sources, including physicians, is provided to the corporation, which in turn provides this documentation to the assessing occupational therapist.

6. The occupational therapists contracted by XXXXX meet with clients inside their homes. The assessment services include taking a history of the individuals relative to their health, performing a physical examination, and rendering an expert opinion involving a diagnosis and prognosis of the individual's occupational health in a report, which is supplied to XXXXX.

7. You review the occupational therapists' reports for quality assurance, consult with them to address any necessary changes, provide feedback, if necessary suggest other diagnostic tests, and discuss the findings with them to produce a final report, which is supplied to the insurer or other recipient. The final report is prepared on the letterhead of XXXXX and it includes the signature of the occupational therapist that performed the assessment and gave the expert opinion. The consideration for the supply of the final report includes an amount that is attributable to your services.

8. You maintain all client records at the office of XXXXX. Clients may call you directly if they wish to discuss anything relative to the report.

9. XXXXX charges cancellation fees when a client cancels an appointment for an assessment. It is understood that where an appointment is cancelled, XXXXX does not provide an assessment, report or other service to the client or the insurer requesting the assessment. The fee is simply intended as compensation for the client having cancelled the appointment.

Ruling Requested

You would like to know whether the following supplies are exempt from GST/HST based on the policy expressed in GST/HST Policy Statement P-248, The Application of the GST/HST to the Supply of Independent Medical Examination ("IME") and to Other Independent Assessments: the supply of an independent occupational therapy assessment made by an occupational therapist to XXXXX and the supply of an independent occupational therapy assessment made by XXXXX to an insurer. In our telephone conversation XXXXX you also asked for a ruling on the GST/HST status of fees paid for cancellations of appointments.

Ruling Given

The release of GST/HST Policy Statement P-248 on September 21, 2006, represents a change in the CRA's policy regarding the scope of the exemptions in sections 5 and 7 of Part II of Schedule V. Prior to its release it was the CRA's position that an independent occupational therapy assessment as described in the Facts above was a taxable supply. With the release of the Policy Statement, this position was revised to include these supplies within paragraph 7(i) of Part II of Schedule V.

Accordingly, a supply of an independent occupational therapy assessment when made by an occupational therapist to XXXXX and when made by XXXXX to an insurer is exempt from the GST/HST pursuant to paragraph 7(i) of Part II of Schedule V.

As a result of the revised policy, XXXXX is not required to remit GST/HST relating to cancellation fees charged for cancelled appointments. Prior to the release of GST/HST Policy Statement P-248, such fees would have been subject to subsection 182(1) pursuant to which XXXXX would have been required to remit GST/HST equal to 6/106 of the total amount collected as a fee for a cancellation in relation to its supplies of taxable independent occupational therapy assessments, as the 6% GST/HST would have applied to the consideration for these supplies.

Note that the remittance of 6/106 would apply to cancellation fees charged after June 30, 2006. The rate of the GST was reduced from 7% to 6% and the HST from 15% to 14% effective July 1, 2006; accordingly, the remittance of 7/107 (or 14/114 if it applies) would have applied to cancellation fees charged prior to this date.

Explanation

Occupational Therapy Services

Paragraph 7(i) of Part II of Schedule V exempts from GST/HST a supply of an occupational therapy service when rendered to an individual and a "practitioner" of the service makes the supply. For purposes of this exempting provision, a "practitioner" is defined to mean a person who practises the profession of occupational therapy 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.

We understand that regulated practitioners must be members of a provincial regulatory authority to practise their health profession. The responsibilities of these authorities are set out in provincial legislation. For example, XXXXX these authorities would include the College of Occupational Therapists XXXXX and its responsibilities are set out in the XXXXX and the Occupational Therapy Act.

XXXXX practitioners who are members of a College are permitted to establish a professional health corporation for the purpose of practising their profession XXXXX. Practitioners incorporate under the Business Corporations Act. Following incorporation, the professional health corporation must apply to the applicable College for a certificate of authorization for a corporation to practise a health profession, e.g., occupational therapy. This certificate, which must be renewed annually, is issued under the XXXXX and without it the corporation may not practise a health profession.

It is our view that where a professional health corporation holds a valid certificate of authorization to practise a profession listed in the definition of "practitioner" in the ETA issued under provincial legislation governing a health profession, XXXXX that corporation would fall within the meaning of "practitioner". Accordingly, as XXXXX holds a valid certificate of authorization, this corporation would fall within the meaning of "practitioner" as defined in the ETA.

The ETA does not regulate or define health care services; rather it incorporates the qualifications necessary to practise particular health professions in the provinces in order to determine whether a person is a "practitioner" for purposes of the ETA. Because the provinces have delegated authority to specific regulatory bodies for the regulation and registration of those who are qualified to practise certain health care professions such as occupational therapy, we consider how these health care professions are regulated in the provinces to determine the weight to give the inferences to be drawn in identifying what services fall within the scope of practice of a health care profession.

Accordingly, we considered how occupational therapy services are described in the XXXXX Occupational Therapy Act XXXXX as well as the services that are recognized by the College of Occupational Therapists XXXXX. It is our understanding that the activities that fall within the practice of occupational therapy are the assessment of function and adaptive behaviour and the treatment and prevention of disorders that affect function or adaptive behaviour to develop, maintain, rehabilitate or augment function or adaptive behaviour in the areas of self-care, productivity and leisure.

After consultation with members of the health care community and the insurance industry, the CRA released GST/HST Policy Statement P-248 to announce its change in position that for purposes of the exemptions in sections 5 and 7 of Part II of Schedule V, independent assessments (including independent occupational therapy assessments) would be considered a service rendered to an individual, notwithstanding that these assessments do not include a therapeutic or treatment component of the individual and that these assessments are done at the request of an insurer or other third party.

We understand that the supplies in question involve the activities of two or more occupational therapists; i.e., yourself and a second and sometimes a third occupational therapist. You requested our comments on how the GST/HST would apply to these supplies. The GST/HST is a transactional tax and therefore, the services rendered by each occupational therapist in the capacity of an independent contractor represents a separate transaction the tax status of which is evaluated separately. This evaluation requires an understanding of the nature of the services provided by the supplier in each transaction. Although each supplier contributes to a single report, their services are distinguishable transactions in this chain of events.

Essentially, we understand that XXXXX contracts with a second occupational therapist who is an independent contractor; i.e., not an employee of the corporation, for an independent occupational therapy assessment. The second occupational therapist assesses an individual in an autonomous capacity to provide his or her own expert opinion. The facts of this transaction indicate that the second occupational therapist has made a supply to XXXXX of an occupational therapy service rendered to an individual. This is an exempt supply described in paragraph 7(i) of Part II of Schedule V.

The services rendered by XXXXX involve applying professional expertise to an occupational therapy report pertaining to an individual for the purpose of providing input and feedback, determining whether further diagnostic testing is necessary, and discussing the findings with the occupational therapist who prepared the report to ensure all occupational therapy issues are addressed. An occupational therapy expert opinion is then supplied by XXXXX to the insurer.

We consider the expert opinion supplied to the insurer by XXXXX to be an occupational therapy service rendered to an individual. This conclusion is supported by the fact that the services of XXXXX consist of applying professional expertise to the findings contained in the occupational therapy report as demonstrated by the input, suggestions, and discussion of the assessment with the second occupational therapist, and XXXXX also applies professional attention, custody and judgment with respect to the individual to whom the occupational therapy service was rendered. Therefore, this supply made by XXXXX to an insurer falls within paragraph 7(i) of Part II of Schedule V.

The application of paragraph 7(i) of Part II of Schedule V is not dependent on the services being rendered at a particular location. Therefore, occupational therapy services rendered to individuals in their homes or elsewhere are exempt when supplied by a practitioner of occupational therapy.

Cancellation Fees

It is the CRA's position that fees paid for cancellations of appointments, to the extent that these fees are not payment for a supply of property or a service, are not consideration for a supply. However, there are situations where the GST/HST is required to be remitted on such fees relating to taxable supplies. These situations are described in section 182.

Subsection 182(1) is a deeming provision where the amount paid for a breach, modification or termination of an agreement, such as a cancellation fee, is treated as consideration for the intended taxable supply. This provision deems the recipient of the supply to have paid and the registrant (the supplier) to have collected the GST/HST on that deemed consideration at the time the fee is paid so that the supplier is deemed to have collected tax equal to 6/106ths or 14/114ths of the amount paid a result of the cancellation. Accordingly, XXXXX would have been deemed to have collected GST/HST on the deemed consideration for cancellation fees charged in relation to supplies of taxable independent occupational therapy assessments.

However, cancellation fees charged in relation to exempt supplies are not covered by section 182 and therefore, XXXXX would not be required to remit any GST/HST on such fees.

This ruling is subject to the qualifications in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service. We are bound by this ruling provided that none of the above issues are 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.

Other Information

In our telephone conversation XXXXX you asked that our letter include information on how recipients of supplies made by XXXXX may recover any GST/HST they paid in error on supplies of exempt occupational therapy services.

Generally speaking, when a recipient of a supply pays an amount as GST/HST in error, e.g., on a supply that should have been exempt, the recipient can request a refund or credit of the amount from the supplier. Section 232 sets out the rules for when a supplier refunds or credits the tax. Pursuant to this section, the supplier must refund or credit the tax within two years after the day the amount was charged or collected and it must provide the recipient with a credit note containing prescribed information. A recipient therefore has recourse under section 232 to obtain an adjustment or refund from the supplier.

Provided specified requirements are met, the supplier may deduct the amount of tax refunded or credited when determining its net tax for the reporting period in which the credit note was issued, to the extent that the amount has been included in determining the net tax for that reporting period or a preceding reporting period. Similarly, the recipient is required to add the amount of the tax refund or credit when determining its net tax for the reporting period in which the credit note is issued, to the extent that the amount was deducted in determining its net tax for that reporting period or a preceding reporting period.

If recourse under section 232 is not feasible, the recipient may make an application for a rebate under section 261. If the recipient chooses to apply for a rebate from the CRA, it must complete and submit the GST189 General Application for Rebate of Goods and Services Tax (GST)/Harmonized Sales Tax (HST) application form. The time limit to apply for this rebate is two years from the day the recipient paid the tax.

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

2007/04/02 — RITS 86092 — Tax Status of XXXXX