24 March 2000 GST/HST Interpretation 13427 - Tax Status of Psychological Services

Dear Sir:

This is in reply to your letter of December 2, 1999, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) with respect to various psychological services you provide to insurance companies, XXXXX XXXXX and individuals.

Please note that as of November 1, 1999, Revenue Canada became the Canada Customs and Revenue Agency (the "CCRA").

Interpretation Requested

You are requesting information on the application of the GST/HST to psychological services. Specifically, you state in your letter that you provide written opinions to insurance companies, XXXXX and to individuals. You do not charge GST to the IXXXXX XXXXX[.] You provide consultations to the XXXXX but do not charge GST to the XXXXX. You charge the GST to individuals for assessment services you provide for their personal purposes and to lawyers for psychological evaluations you render to their clients. You would like our opinion on whether or not you are correctly applying the GST.

Interpretation Given

Virtually all health care services provided by regulated health care practitioners are exempt of the GST/HST when the services are rendered to an individual (i.e., a natural persons). For the purposes of the Excise Tax Act (the "ETA"), health care services are exempt of the GST/HST when the services provided maintain health, prevent disease, or diagnose or treat an injury, illness, or disability of an individual.

Paragraph 7(j) of Part II of Schedule V to the ETA provides an exemption for a supply of a psychological service rendered to an individual by a practitioner of the service. A "practitioner" is defined in section 1 of Part II of Schedule V to the ETA to be a person who is licensed or otherwise certified to practice the profession in the province in which the service is supplied. As you are aware, a proposed amendment to the ETA will remove the additional requirement that a practitioner of psychological services, i.e., a psychologist, be registered in the XXXXX[.] As with the services provided by other regulated health care practitioners included in the ETA, an exempt psychological service is one that is provided to maintain the health, prevent disease, or diagnose or treat an injury, illness, or disability of an individual, i.e., a "clinical" health care service. We understand that psychologists registered in the XXXXX provide "clinical" health care services. The proposed removal of the requirement that a psychologist be registered with the XXXXX has not changed our interpretation of an exempt health care service. The tax status of each service rendered by a psychologist to an individual will have to be determined on a case-by-case basis, i.e., each type of service will have to be identified.

Where the consideration for an exempt psychological service is paid for by a third party, e.g., a private health insurance plan, these services remain exempt for the purposes of the ETA. Thus, where a psychologist makes a supply to a company, organization, government agency or other entity of a psychological service rendered to an individual, e.g., a company's employees, the psychological service is covered by the ETA exemption.

With respect to the assessment services you provide to individuals, as we do not have any details concerning these services, it is not possible to state definitively whether or not such services are taxable or exempt for the purposes of the ETA. An assessment service supplied by a psychologist to a private individual for his or her personal purposes would be exempt if the assessment service is in fact an exempt psychological service as described above, i.e., a health care service rendered to an individual. A determination of whether an assessment service provided to an individual is an exempt psychological service may be made by ascertaining the following: the purpose of the assessment, the expected outcome of the assessment, the methods used to assess the person, and whether a diagnosis was rendered to the person. For instance, performance enhancement services such as motivational inspiration provided to a hockey player or figure skater are not exempt health care services.

Concerning written opinions and medical reports prepared by psychologists and other health care practitioners, the CCRA's position is that generally, these opinions and reports are exempt of the GST/HST only where they are ancillary to an exempt health care service rendered to an individual. These types of reports communicate the present health status of an individual. For instance, if a psychologist prepares a written opinion of the condition of an individual's health as a result of having rendered an exempt psychological service to the individual, the written opinion is an element of a single supply of an exempt psychological service.

Thus, where a written opinion or medical report is supplied to a third party such as an insurance company, Crown Corporation, the XXXXX or other government entity, lawyer, employer, etc., the written opinion or medical report must be ancillary to an exempt health care service rendered to an individual in order for the GST/HST not to apply to the supply. For example, an employer requests a psychologist to render a psychological service to an individual employee. The GST/HST is not collectible on the consideration charged by the psychologist to the employer for this supply as the service was rendered to an individual. If the psychologist prepares a medical report for the employer as a result of having personally rendered the psychological service to the employee and a single charge is made for both the medical report and the psychological service on which the medical report is based, then the psychologist has made a single supply of an exempt psychological service irrespective of the fact that the medical report was supplied to a third party. The medical report supplied to the employer is simply the formal means of communicating the psychological services that were rendered to the individual. Generally, medical reports supplied to third parties that are viewed as being ancillary to an exempt supply of a health care service are those that relate to an individual's present health status for:

•   insurance medical examinations not relating to claims or settlements;

•   employment examinations;

•   pre-placement examinations;

•   immigration examinations;

•   executive medical examinations; and

•   return-to-work examinations.

Medical reports and written opinions supplied to third parties are taxable if they are not ancillary to exempt health care services rendered to individuals by regulated health care practitioners. Unlike the medical reports and opinions prepared for the purposes outlined above, the medical reports and opinions listed below that are supplied to third parties are documents containing a statement of fact of the physical or mental condition of an individual pertaining to a past incident or occurrence (e.g., an accident). Generally, there is no requirement for an individual to undergo an examination by a physician to prepare such a report as the individual would have previously been assessed, diagnosed and treated for the condition. Since these professional opinions are not prepared as a result of rendering a health care service to an individual, the following medical reports and opinions are outside the scope of the exempting provisions in Part II of Schedule V to the ETA and are therefore taxable:

•   opinions provided by health care practitioners under contract with insurance companies and other parties;

•   reports/opinions prepared as a result of independent insurance medical examinations/assessments that relate to claims and settlements; and

•   medico-legal reports.

Opinions provided by a health care practitioner that relate to the conditions and limitations of private medical and dental plans and are not exempt for the purposes of the ETA. For instance, a psychologist who is under contract with an insurance company to review the reports or documentation of other health care practitioners and prepare a written opinion is not rendering a health care service to an individual. The psychologist reviews a medical file and other documentation and prepares a report without seeing the individual at all.

Independent examinations/assessments and accompanying reports/opinions supplied to third parties such as insurance companies, Workers' Compensation Boards and lawyers that relate to insurance claims and settlements are taxable as they are used to determine a policy holder's or claimant's degree of entitlement to claim compensation or other benefits under an existing policy or plan, rather than to render a health care service to an individual. The health care practitioner examines the physical or mental condition of an individual who is the subject of an existing or potential accident or disability insurance claim, and prepares a report or written opinion to a third party. An example of a taxable supply is an assessment by a psychologist of an accident victim's ability to live a normal life, including gainful employment. The psychologist examines the individual for the sole purpose of providing a report to an insurance company. There is no intention to render health care to the individual.

Medico-legal reports are requested by third parties for the purpose of ongoing or potential legal action. Generally, there is no requirement for an individual to undergo an examination by a health care practitioner to prepare the report as the individual has already been assessed and treated for the condition. The information is requested for litigation purposes and the supply of this type of report is taxable.

Organizational work such as consultation, educational, and program development services supplied by a psychologist or other health care practitioner are not exempt health care services for the purposes of section 7 of Part II of Schedule V to the ETA. Thus, consultation services supplied by contracted psychologists to an entity such as the XXXXX as well as any other services for use by an entity to develop training programs, statistical studies, analysis, etc., are not exempt psychological services for the purposes of the ETA. These supplies are subject to the GST at the rate of 7%, or the HST at the rate of 15% in the participating provinces of Newfoundland, Nova Scotia, and New Brunswick.

Most provincial and territorial governments, including all of their departments and ministries, and certain of their Crown Corporations, boards, commissions, and agencies, do not pay the GST/HST on their purchases as a result of Reciprocal Taxation Agreements with the federal government. A list of the provincial and territorial government entities that do not pay the GST/HST on their purchases is available at CCRA Tax Services Offices across Canada. Please note that this list is subject to change. If you make a taxable supply to a provincial or territorial government entity that is on this list, you do not collect the GST/HST on the supply provided that you have documentary evidence that a listed provincial or territorial government entity was the recipient. Such evidence may include a certification clause on the contract or invoice identifying the particular provincial or territorial government entity as the recipient. The XXXXX XXXXX is included on this list and therefore you would not charge the GST/HST on any taxable supplies you make to this provincial government entity.

Although XXXXX, it is not included in the list of provincial and territorial government entities that do not pay the GST/HST. Therefore, if you are a registrant for the purposes of the ETA, you would be required to charge the GST/HST on any taxable supplies you make to XXXXX[.] All federal government departments, branches, corporations, and agencies, pay the GST/HST on their taxable purchases. Therefore, if you are a registrant for the purposes of the ETA, you would be required to charge the GST/HST on any taxable supplies you make to the federal government, XXXXX The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the ETA, if enacted, could have an effect on the interpretation provided herein. These comments are not rulings and, in accordance with the guidelines set out in section 1.4 of Chapter 1 of the GST/HST Memoranda Series, do not bind the CCRA with respect to a particular situation.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-6761, or the Tax Services Office in your area at:

XXXXX XXXXX
XXXXX
XXXXX XXXXX

Yours truly,

Susan Eastman
Municipalities and Health Care Services Unit
Public Service Bodies and Governments Division