File: 11865-1(lgd)
TP-SS 1881
XXXXX
XXXXX June 29, 1995
This is in response to the letter from XXXXX of September 12, 1994 regarding the application of the GST to the compensation and distribution of monies between an Associate dentist (associate) working for a Host dentist (host). This letter was forwarded to this office by XXXXX on February 2, 1995.
You requested our comments with respect to the application of the GST to the following two proposed compensation arrangements where: the associate pays the host sixty-five per cent of the collections after paying for any laboratory expenses and secondly, where the host pays the associate thirty-five per cent of the collections after paying for any laboratory expenses.
In our opinion, the main issue to be addressed and clarified is the relationship for GST purposes that exists between the host and associate. This will determine the GST consequences of each of the compensation arrangements. The proposed agreements state quite emphatically that the associate is engaged as an "independent contractor". However, if the terms of employment between the host and the associate meet the criteria of an employer-employee relationship as determined under the Income Tax Act, a supply made in relation to the office or employment of the supplier is excluded from the definition of service in subsection 123(1) of the Excise Tax Act (ETA). As a result, salaries paid to employees are not subject to the GST, consequently the proposed compensation arrangements become a moot and irrelevant issue.
Our understanding of the facts provided in the letter from XXXXX to you is as follows:
1. The associate would be performing dental treatment and services on patients of the host, as determined by the host.
2. The patient's records remain in the custody of the host.
3. The associate holds the status of an "Independent contractor" and is not considered an employee of the host.
4. The host will provide the services and supplies necessary for the treatments, including the services of auxiliary staff.
5. The host is not a registrant.
6. The associate's billings after paying laboratory fees would be in excess of XXXXX .
7. The associate would bill the patient and the monies would be received by the host who would pay the laboratory fees and distribute thirty-five percent of the remaining billings back to the associate.
Supplies of dental care services rendered to individuals which are exempt of the GST under section 5 of Part II of Schedule V to the ETA retain their exempt status regardless of the channels (e.g. to the host) through which the billing flows. The key criterion is the type of dental care provided by the "medical practitioner". Regardless of the billing arrangement, whether the host bills and receives payment on behalf of the associate or the associate bills and personally receives payment, the revenues related to the provision of dental care services are the revenues of the associate.
Accordingly, where the host bills and receives payment in respect of these services from the patient or through a dental insurance plan and returns a portion (thirty-five per cent after payment of laboratory fees) of the amount received to the associate, this portion remains exempt. Conversely, where the associate bills and receives payment from a patient or through a dental insurance plan in respect of dental services rendered to a patient and returns a portion (sixty-five percent after payment of laboratory fees) to the host, the amount retained by the associate remains exempt.
The amount retained by the host (i.e. sixty-five per cent of the billings made by the associate after payment of laboratory fees) or the amount rendered by the associate to the host (sixty-five per cent of the billings received after payment of laboratory fees) is considered to be consideration for the goods and services provided to the associate by the host and is subject to the GST at 7%. This amount in all likelihood includes the associate's pro-rated share of the practice expenses including receipt of all the equipment, supplies, facilities, dental auxiliary and services necessary for the associate to perform dental services, as well as a "mark-up" representing a profit for the host practitioner in respect of the supply of the property and services.
The value of the consideration for the goods and services supplied by the host should be determined by calculating the difference between the amounts billed either to the patient or the dental plan carrier and the amount the associate either retains for himself or is remunerated by the host.
The following responses are provided to the specific questions included in the letter from XXXXX
1. As outlined above, the GST is applicable in both the proposed compensation arrangements. If the associate pays the agreed upon percentage to the host, the associate is liable to pay the GST on that amount, if the host retains an agreed upon percentage, then the host is liable to withhold and remit the GST calculated on the amount of consideration withheld.
2. Neither ownership of receivable, receipt of remuneration or the method of distribution is relevant in determining the application of the GST in the provision of exempt dental care services. As previously addressed, the key criterion is the type of dental health care service rendered to an individual by a "medical practitioner".
3. The determination of the relationship between parties has a direct bearing on the application of the GST. In an employer-employee relationship, salaries paid by employers to employees are not subject to the GST. However, in a situation where an "associate", "independent contractor" or other similar arrangement is in effect, the facts may reveal there is a supply being provided for consideration and this is subject to the GST at 7%.
4. The "ownership" of the patient is not relevant, the type of dental care services rendered to an individual by a "medical practitioner" is the primary factor in determining whether the services are either taxable or exempt.
If you have any questions or require further clarification please contact me at (613) 954-5127 or Lance Dixon at (613) 952-9264.
Yours truly,
Enikö Vermes
A/Manager
Goods and Health Care
Special Sectors
GST Rulings and Interpretations
| c.c.: |
Lance Dixon
Enikö Vermes
Adrien Venne |
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