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Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 14th Floor
320 Queen Street
Ottawa, ON K1A 0L5XXXXXAttention: XXXXX XXXXX
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Case: HQR0000965 / 7359XXXXXJanuary 7, 2000
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Subject:
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GST/HST APPLICATION RULING
Med-Emerg After-Hours Clinic
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Dear Sir:
This is in reply to your letter of September 29, 1997, with attachments, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the transactions between XXXXX) and various physicians (i.e., "medical practitioners"). The subject of your enquiry has been under an extensive review. As a result of this review, we have clarified our position on the application of the GST/HST to payments made within medical practice organizations.
Please note that as of November 1, 1999, Revenue Canada became the Canada Customs and Revenue Agency (the "CCRA").
Our understanding of the facts and the transactions, based on the sample written agreement between XXXXX and a physician as well as your previous letter of December 16, 1996, sent to the XXXXX, is as follows:
Statement of Facts
1. XXXXX is a partnership that operates several walk-in clinics in the XXXXX[.]
2. The health care services are provided by physicians who have entered into written agreements with XXXXX to render their services to the patients to be treated at the walk-in clinics.
3. The physicians who sign the written agreements with XXXXX are not partners of XXXXX[.] They are independent contractors providing their services to XXXXX[.]
4. The written agreements establish the billing arrangements with respect to all services rendered to patients at the clinics, whether the payments or reimbursements for these services are made by the XXXXX or by the patients. Specifically, the terms of the written agreements provide that XXXXX will collect the fees with respect to the health care services provided by the physicians and pay the physicians a certain percentage, for instance, XXXXX of these fees.
Ruling Requested
The portion (e.g. XXXXX[) o]f the fees collected by XXXXX in respect of the health care services provided by the physicians that XXXXX retains is not subject to the GST/HST.
Ruling Given
It is our ruling that the portion (e.g. XXXXX) of the fees collected by XXXXX in respect of the health care services rendered by the physicians that XXXXX retains is subject to the GST/HST. The portion of the physicians' fees that XXXXX retains is consideration paid by the physicians to XXXXX for a taxable supply made by XXXXX that can be characterized as an administrative service. If a registrant, XXXXX is required to collect and remit the GST/HST at the rate of 7% on the value of the consideration for this supply.
This ruling is subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST/HST Memoranda Series. We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal; that there are no relevant changes in the future to the Excise Tax Act (the "ETA"), or to CCRA interpretative policy; and that you have fully described all necessary facts and transactions for which you requested a ruling.
Explanation
As you were advised in the letter of March 13, 1997 (Case GS/96051) sent to you by our XXXXX is making supplies of services to the physicians that, as stated in the ruling above, can be characterized as administrative services. Pursuant to a written agreement between XXXXX and the physicians, XXXXX bills and collects the fees on behalf of the physicians in respect of the services rendered to the patients treated at the medical clinic and retains a portion of these fees. As explained below, our position is that XXXXX is making a taxable supply to the physicians that consists of billing and collecting the fees on their behalf, and the portion of the physicians' fees XXXXX retains represents consideration paid by the physicians for this supply.
Our information is that, in accordance with provincial legislation, only physicians are permitted to render medical and surgical services and receive remuneration for these services. Notwithstanding the terms of the written agreements between XXXXX and the physicians, the patients consulting the physicians at the medical clinic cannot be said to be patients of XXXXX. The written agreements between XXXXX and the physicians do not negate the fact that the provision of the health care services are with respect to the activities of the physicians and not of the medical clinic.
Although XXXXX bills for and collects, by way of an arrangement with the physicians, the fees payable in respect of the physicians' services, this arrangement does not alter the nature of the transaction, i.e., the fees are remuneration paid by XXXXX or the patients to the individual physicians. This remuneration is for the supply made by the physicians of health care services that they rendered to individuals and the total amount applicable to these services is the revenue of the physicians. We understand that the "assignment" by physicians of their fees to another entity, such as an operator of a medical clinic, is not recognized by the XXXXX[.] It is our view that these types of written agreements between operators of medical clinics and physicians are internal arrangements between these parties that reflect the business practices of the medical clinic and are unrelated to the provision of health care services. The physicians have in fact assigned their own money to the operator of the medical clinic. As such, the portion of the physicians' fees the operator of the medical clinic retains is in respect of a separate supply from the health care services rendered by the physicians for which the physicians received their remuneration from XXXXX or their patients. This separate supply is an administrative service provided by the operator of the medical clinic to the physicians. This service may consist of the provision of a variety of goods and services such as handling the billings and collections on behalf of the physicians and providing the necessary equipment, supplies, overhead, staff, etc., for their use. The amount of the physicians' fees retained by the medical clinic is therefore consideration paid by the physicians for this supply. There are no provisions in the ETA to exempt a supply of an administrative service and accordingly, this supply is subject to the GST/HST at the rate of 7% or, in the participating provinces of Newfoundland, Nova Scotia, and New Brunswick, the rate of 15%.
Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-6761.
Yours truly,
Susan Eastman
Municipalities and Health Care Services Unit
Public Service Bodies & Governments Division
| c.c.: |
O. Newell
S. Eastman
M. Guay
XXXXX |
| Legislative References: |
Section 5 of Part II of Schedule V to the ETA |
| NCS Subject Code(s): |
R 11865-3 |
[i] 1. XXXXX indicates that the allocation of the purchase price between the Assets and a non-competition agreement was to be agreed upon by the parties prior to the closing date. However, a XXXXX letter to the Purchaser's solicitor from XXXXX, certifies that the non-competition agreement was removed from the Agreement and that the purchase price was allocated solely to the assets purchased.
[ii] 2. "Public service body" is defined at subsection 123(1) of the ETA as a non-profit organization, a charity, a municipality, a school authority, a hospital authority, a public college or a university.
[iii] 3. A registrant for GST purposes is a person (such as a corporation or an individual) who is registered or who is required to be registered for the GST.
[iv] 4. The definition of 'Assets' in the Agreement refers to personal property set out in XXXXX, but only real property is described under 'Assets Being Purchased' at XXXXX. XXXXXof the Agreement indicates the transfer of real property as well as customer contracts and all licences required. The Allocation of Proceeds of Disposition on Sale of Assets provided to XXXXX by XXXXX lists land, landfill permit, buildings and contracts.)
[v] 5. Under subsection 123(1) of the ETA, a "small supplier" means a person who is at that time a small supplier under section 148 or 148.1 of the ETA. A person carrying on commercial activity in Canada ceases to be a small supplier and must register when their total (gross) worldwide taxable revenues (and that of their associates) in the immediate preceding four consecutive calendar quarters exceeds $30,000 or exceeds $30,000 in one calendar month (for PSBs the threshold amount if $50,000). The calculation excludes sales of goodwill of a business.
[vi] 1. Section 165 of the Excise Tax Act.
[vii] 1. Under s. 136(2) of the Act, the supply of the 120-acre real property to you is considered to be two separate supplies for GST purposes, one supply of a residential complex portion and another supply of the remaining portion which is not part of a residential complex.
[viii] 2. A further requirement to be a "builder" under par. (c) of the definition is that the supply of the home has to be made before the home has been used or occupied by any individual as a place of residence.
[xii] ii1 Subsection 1(3), and paragraph 1(2)(c) of the XXXXX Schedule.
[xiii] iii2 Proposed Amendment
Subsection 1(6) of April 23, 1996 Notice of Ways and Means Motion Draft Amendments to Agriculture and Fishing Property (GST) Regulations proposes that subsection 1(3) of the schedule to the Regulations be replaced by the following:
(3) By-products of the food processing industry and plant or animal products, when sold in bulk quantities of at least 20 kg (44 lbs.) or in bags that contain at least 20 kg (44 lbs.) and ordinarily used as feed, or as ingredients in feed, for farm livestock, fish or poultry described in subparagraph 2(c)(i) or for rabbits, ostriches, rheas, emus or bees.
[xiv] iv3 Section 165 of the Excise Tax Act.
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