6 March 2008 GST/HST Interpretation 92711 - Application of GST/HST to Sweetened Baked Goods and Paragraph 97 of GST/HST Memoranda Series 4.3, Basic Groceries

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 facsimiles XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to block fees billed by psychiatrists to their patients.

XXXXX

Effective January 1, 2008, the rate of the GST has been reduced from 6% to 5% and the rate of HST from 14% to 13%. The new rates apply to supplies for which the GST/HST is paid on or after January 1, 2008, without having become payable before that date. Specific transitional rules apply to certain supplies, for example, real property. For more information on the transitional rules for the reduction of the GST/HST rate, please refer to GST/HST Notice 226, GST/HST Rate Reduction in 2008 on the Canada Revenue Agency (CRA) Web site at www.cra-arc.gc.ca/E/pub/gi/notice226/README.html.

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

Statement of Facts

You included the following documents for our consideration with respect to your request:

•   XXXXX is a sample agreement between a psychiatrist and a patient for the psychiatrist's services XXXXX;

•   Psychiatrist's XXXXX for uninsured services; and

•   An explanation prepared by a psychiatrist of the purpose of the block fee payment. The explanation contains two examples of patients receiving individual intensive psychotherapy to illustrate the assertion that the block fee generally constitutes part of the therapy that the patient needs and as such is part of the medical service provided by the psychiatrist.

On the basis of your submission and the documents provided, we understand the facts as follows:

1. In addition to services paid for by XXXXX (insured services), psychiatrists may offer their patients other services that are not paid for by XXXXX (uninsured services). Patients may decide not to accept any uninsured services and direct the psychiatrist not to perform them.

2. If a patient elects to accept uninsured services from a psychiatrist, consideration for uninsured services may be charged directly to the patient at the discretion of the psychiatrist. There is no legislation that specifically fixes a set fee to be charged by a psychiatrist or other physician for rendering uninsured services.

3. A patient who accepts uninsured services may pay on a fee-for-service basis or as an alternative, psychiatrists may offer their patients the choice of paying a block fee in advance to cover a specific time period, e.g., 12 months. The block fee may be calculated according to a formula based on the number of sessions attended or it may be charged as a flat fee payable monthly, as set out in the psychiatrist's XXXXX.

4. The block fee is an optional payment that a patient may choose to make. A patient who chooses to pay a block fee will not be charged any additional amount no matter how many uninsured services are provided by the psychiatrist.

5. The explanation prepared by a psychiatrist states that patients pay the block fee to receive something that is tangible to them, that being the assurance and benefit that someone will be available to them when the need to call arises. The block fee gives the patients the right to expect attention from the psychiatrist. This right is a benefit to the patients because it gives them the assurances that they can or could call the psychiatrist without feeling they are being a burden to the psychiatrist because they paid for that right. The provision of this right expressed by the payment of the fee is in itself therapeutic. This right is also compared to a "soothing object" that represents the psychiatrist being close at hand.

6. In both examples in the psychiatrist's explanation, it is stated that patients indicate that they feel comforted or safe knowing that the services of the psychiatrist would be available. In the first example, the psychiatrist suggests to the patient that paying for uninsured services is no longer cost-effective since the patient did not call him. The patient chooses to continue making the payments for security reasons. In the second example, the block fee is described as representing insurance.

7. The XXXXX distinguishes psychotherapy services from uninsured services. It states that the psychiatrist may offer additional uninsured services for which a separate charge is made. The psychiatrist's supply of psychotherapy is an insured service payable by XXXXX and the fee for uninsured services, unless charged on a fee-for-service basis, will be determined between a patient and a psychiatrist.

8. The XXXXX describes services for which a psychiatrist may bill the patient directly as:

•   interviews or case conferences on behalf of the patient with professionals none of whose services are insured within the meaning of the XXXXX (i.e., these services are not paid for by XXXXX);

•   advice that is rendered during a telephone conversation, email communications or by written requests except where the telephone advice, email communications or regular mailed letters are listed as part of, or all of, an insured service specified by regulation XXXXX, which is not the case here;

•   any service or examination, including the supplying of certificates, charts, reports, or other communications, required by a third party or by statute or regulation; and

•   medical prescriptions requested by the patient when no concomitant insured service is provided.

9. At the time the block fee is charged to the patient, which particular services will be provided is unknown.

10. The psychiatrist's XXXXX also provides for a patient to acknowledge that he or she has received a copy of the XXXXX Policy Statement on block fees and uninsured services.

11. XXXXX

12. The XXXXX's policy states that physicians may not charge a block fee to be available to render an insured service nor may a physician charge a patient for any constituent element of an insured service. XXXXX.

13. The XXXXX's policy states that not all physicians charge for uninsured services. Physicians who choose to charge for uninsured services are not required to offer the block fee option to their patients. Physicians who offer this option must do so in writing and provide their patients with a copy of the XXXXX Policy Statement.

Ruling Requested

You would like to know whether for purposes of the ETA the block fee agreement between a psychiatrist and his or her patient provides for a supply of a health care service to be rendered to the patient or a supply made to the patient consisting of a right to future services (intangible personal property) from the psychiatrist.

Ruling Given

Based on the facts set out above, we rule that block fees are consideration for a taxable supply of intangible personal property; i.e., a right to future services, from the psychiatrist. Accordingly, the GST at the rate of 5% (or where the supply is made in New Brunswick, Nova Scotia, or Newfoundland and Labrador the HST at the rate of 13%) applies to block fees charged by psychiatrists to their patients.

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.

Explanation

As you know, the GST/HST is a transactional tax and for each transaction, the supplier must determine whether the tax is applicable. Under a transactional tax system, the exempting provisions apply on a "supply-by-supply" basis. The exempting provisions in Part II of Schedule V generally apply to a supply of a particular service rendered to an individual. Specific criteria must be met in order for a particular supply to fall within the exempting provisions, which identify particular services where there is some legislated licensing or registration of the person supplying or rendering the service.

Section 5 of Part II of Schedule V exempts a supply made by a medical practitioner, such as a psychiatrist, of a consultative, diagnostic, treatment or other health care service rendered to an individual. This section excludes surgical or dental services performed for cosmetic purposes and not for medical or reconstructive purposes; however, these exclusions are not the case here.

Generally, corporations must charge the GST/HST for the services of a medical practitioner. On February 26, 2008, the Minister of Finance announced a proposed amendment to section 5 of Part II of Schedule V to treat the services of medical practitioners as GST/HST exempt regardless of whether they supply their services directly or through a corporation. This proposed amendment applies to supplies made after February 26, 2008.

Generally speaking, physicians are viewed for purposes of the ETA as making multiple supplies in respect of each individual (patient) to whom they render services. Physicians render distinct services to each patient for which consideration on a fee for service basis applies and this consideration is billed to specific recipients – typically either to the patient, the patient's private insurer, or to a provincial health insurance plan.

According to your submission, the block fee is an option offered to each patient in respect of uninsured services that a patient may choose to accept at his or her discretion. Uninsured services are not psychotherapy services nor are they constituent elements of psychotherapy services. The purpose of the patients paying the block fee is to acquire the right to a benefit of the psychiatrist being available should the patients need to call the psychiatrist; the acquisition of this right provides a level of comfort or safety to the patients because it means they know that the services of the psychiatrist would be available. Patients may choose to pay the block fee even if they actually rarely or never call the psychiatrist during the time period covered by the fee. These facts are determinative that the block fee is not dependent on any services actually being, or to be, provided to the patient - there may be no services, very few services, or there may be extensive services performed in connection with this fee. In addition these facts are determinative that the block fee is in relation to a separate transaction that is an end in itself; i.e., a separate supply from the psychotherapy services provided by the psychiatrist. The agreement for the block fee can therefore be described as an end in itself, having a distinct and separate utility to the patients.

XXXXX

The XXXXX states that physicians, which include psychiatrists, may not charge a block fee to be available to render an insured service paid for by XXXXX nor may a physician charge a patient for any constituent element of an insured service. The block fee for uninsured services will be determined between a patient and his or her psychiatrist. It is therefore understood between them what the nature of the uninsured services provided by the psychiatrist will be. In this instance, the patient is aware that he or she is being charged a block fee relating to uninsured services. Psychotherapy is an insured service under XXXXX and therefore if the supply for which the block fee is charged were an element of psychotherapy services then XXXXX and not the patient would pay for such a supply.

The separate supply for which the patients pay the block fee is a supply in its own right but in order to determine the application of the GST/HST to this supply, it must be determined whether the supply is a supply of property or a supply of a service.

Even though the provision of the right to call the psychiatrist expressed by the payment of the block fee may have a therapeutic benefit from the patient's perspective, this is not in itself determinative that the block fee represents consideration for a supply of a service. Rather, to determine whether a transaction constitutes a supply of property or a supply of services, regard must be had to all the circumstances in which the transaction takes place in order to identify its characteristic features.

The definition of "property" in subsection 123(1) means any property, whether tangible or intangible, and includes a right or interest of any kind and a chose in action. Property includes intangible personal property and other interests in or claims to anything. The definition of "service" in subsection 123(1) excludes property.

The supply made by the psychiatrists of being available does not contain a service element rendered by the psychiatrist comprising the psychiatrist's skills and experience because at the time the block fee is charged no service is rendered to the patient. In addition, block fees cannot be directly linked to any particular service to be provided, as they are not dependent on the actual services, if any, that may be provided. In effect, the block fee is comparable to the purchase of a plan that covers a menu of services that a patient has the right, at his or her discretion, to request over the course of a specific time period. The block fee is a payment for a right to future services because the block fee gives the patient the unrestricted right to future services from the psychiatrist. A right is not a supply of a service but of intangible personal property. Accordingly, block fees constitute consideration for a separate supply of intangible personal property.

As consideration payable for a separate supply of intangible personal property, the block fee is not consideration payable for a supply of a service because the definition of "service" in subsection 123(1) excludes property. The result is that the block fee is not consideration for a supply of a "health care service" for purposes of section 5 of Part II of Schedule V.

Should you have additional questions on the interpretation and application of GST/HST, you may contact the XXXXX GST/HST Rulings Centre at 1-800-959-8287.

Yours truly,

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

2008/01/29 — RITS 95191 — Application of GST/HST to Charter Vehicle Trips