11865-2/39(lgd)
XXXXX
This is further to your telephone conversation with Robert Boudreau, your letter to Robert Boudreau of June 17, 1994 and discussions held at your office on March 16,1995 regarding the supply of a health care service made by an ophthalmologist. I apologize for the delay in responding.
You requested our comments with respect to the application of the GST to laser surgery performed by a XXXXX ophthalmologist using equipment and facilitates owned by a "partnership" of ophthalmologists.
Our understanding of the facts provided by you are as follows:
1. A private eye clinic is located in a hospital.
2. The clinic is a general partnership.
3. The partnership although not registered, should be registered for GST purposes as its taxable supplies exceed $30,000.
4. The partnership owns the laser equipment used to perform laser surgery.
5. The procedures performed or facility fees incurred using this equipment are not covered by the Quebec Health Insurance Plan.
6. The XXXXX bills the patient for the supply of health care services.
7. The XXXXX pays a percentage of his billings to the partnership for the use of the clinic (e.g. staff salaries, equipment).
8. Under the above arrangement the payments made to the partnership for use of its facilities are subject to the GST.
9. The XXXXX is not an employee of the partnership but rather a self-employed individual.
10. Under the terms of a new proposed agreement, the XXXXX will bill the patient for the laser surgery without paying the partnership for the use of the facilities.
11. The partnership will subsequently bill the patient a "facility fee".
Issues
1. The application of section 2 of Part II of Schedule V to the ETA when the patient is charged a "facility fee" when receiving exempt health care services.
2. The GST status of the consideration paid by a XXXXX for the use of a clinic ( cost of using facilities) owned and operated by the partnership.
Exempting Provisions
The applicable exempting provision for the supply of institutional health care service within a health care facility is section 2 of Part II of Schedule V to the Excise Tax Act (ETA), which reads as follows:
"A supply of an institutional health care service made by the operator of a health care facility to a patient or resident of the facility, but not including a service related to the provision of a surgical or dental service that is performed for cosmetic purposes and not for medical or reconstructive purposes".
The applicable exempting provision for the supply of health care services provided by a medical practitioner is section 5 of Part II of Schedule V to the ETA, which reads as follows:
"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 reasons and not for medical or reconstructive purposes)".
Analysis - Health Care Services
Based on the information provided there appears to be some confusion regarding the use and meaning of the terms " XXXXX ", "cost of using facilities", "facility fee/charge" and "management fees". For purposes of clarification the following information is offered:
The term " XXXXX " is used in the health care field to describe a situation whereby an established medical practitioner utilizes the services of another medical practitioner to provide health care services to patients of the practice when the established practitioner is not available to do so. The operative words to this explanation are "not available". For example, during periods of vacation, illness or maternity leave, a replacement medical practitioner known as a " XXXXX " may replace an established practitioner.
Remuneration to the XXXXX is generally based on a percentage of billings. Depending on the facts, the GST may apply to the portion of the remuneration paid to or retained by the established practitioner. In this case the medical practitioner using the facilities owned by the partnership is not providing a " XXXXX ", but is rather an associate or self-employed practitioner, hence, paragraph 30(c) of GST Memorandum 300-4-2 is not applicable.
The terms "facility fee/charge" and "cost of using facilities" are not synonymous. The term "facility fee/charge" applies to the consideration paid by, or on behalf of a patient receiving exempt health care services in a "health care facility" (i.e. institutional health care services). The term "cost of using facilities" applies to consideration paid by a medical practitioner using a facility belonging to another person, in this case, the partnership. Depending on the facts of the case, the meaning attributed to "facility fee/charge" supplied to a patient receiving health care services would be exempt pursuant to section 2 of Part II of Schedule V to the ETA (i.e. institutional health care services). This is applicable only if the facility meets the definition of "health care facility" as provided for in paragraph 1(a) of Part II of Schedule V to the ETA. and the institutional health care services are made by the operator of the "health care facility". Included in the goods and services provided for in "institutional health care services" are, supplies of drugs, services related to operating room facilities, medical and surgical equipment and supplies used in patient care, to name a few.
The facts presented in this case indicate the private clinic located within a hospital meets the definition of a "health care facility" pursuant to paragraph 1(a) of Part II of Schedule V to the ETA. In addition any "institutional health care services" as defined in section 1 of Part II of Schedule V to the ETA when provided by the operator (i.e. the partnership) of the health care facility to a patient or a resident of the facility is an exempt supply. Conversely, any consideration paid to or retained by the partnership is consideration paid for a supply to the self-employed practitioner of, staff, office space, telephone service and other overhead expenses and is subject to the GST.
The term "management fee/expenses" refers to charges made by management corporations to health care professionals for the supply of support and administrative staff, accounting, payroll services and other overhead costs. Management corporations are separate legal entities, therefore they must register for the GST if their supplies exceed the $30,000 threshold. Their charges to the health care professionals for accommodation, administration and other supplies are taxable supplies. A review of the facts provided indicates the partnership in question is not a management corporation.
The fact that the partnership and/or practitioner propose changes to their billing practice has no consequence on the application of the GST to the supply of exempt health care service.
As requested in your letter of June 17, 1994 and our meeting on March 16, 1995, the following comments and interpretation are provided for your information and action.
The private eye clinic in question meets the definition of "health care facility" pursuant to paragraph 1(a) of Part II of Schedule V to the ETA. Consequently, the consideration (i.e. facility fee/charge) paid by the patient to the partnership for the supply of "institutional health care service" made by the operator of the health care facility is exempt pursuant to section 2 of Part II of Schedule V to the ETA. The method of billing has no tax consequences.
The supply of laser eye surgery, made by the medical practitioner and rendered to an individual is an exempt supply pursuant to section 5 of Part II of Schedule V to the ETA.
Consideration paid to the partnership by the practitioner is consideration paid for the supply of staff, office space, telephone service, other overhead expenses and is subject to the GST at the rate of 7%.
I trust the foregoing provides the clarification requested in your letter. However, if you have any further questions please contact me at (613) 954-7656 or Enikö Vermes at (613) 954-5127 at your convenience.
J.A.Venne
Director
Special Sectors
GST Rulings and Interpretations
| c.c.: |
J.A.Venne
E. Vermes
L. Dixon |
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