6 August 2002 GST/HST Ruling 34606 - Application of the GST/HST to Annual or Block Fees

Dear Sir:

This is in reply to your facsimile of XXXXX, our subsequent telephone conversations, and the supplementary information you provided on May 13, 2002, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to annual or block fees charged by medical practitioners (i.e., "physicians") to their patients. The annual or block fee is an amount charged by physicians to their patients for the right to future services over a specified period of time.

Statement of Facts

On the basis of the information you provided, as well as additional information we obtained from the College of Physicians and Surgeons XXXXX, our understanding of the facts is as follows:

1. Physicians may charge their patients a fee for services that are not insured under a provincial health insurance plan. Typical uninsured services include items such as telephone advice, renewal of prescriptions by telephone, completion of various forms and documents associated with medical assessments, and certain patient-related interviews or discussions with professionals.

2. Consideration for uninsured services may be charged directly to patients at the discretion of the physician. There is no legislation that specifically fixes a set fee to be charged by a physician for rendering uninsured services.

3. Patients may pay for uninsured services on an individual service-by-service basis or as an alternative, physicians may offer their patients the choice of paying an annual or block fee in advance to cover the delivery of uninsured services.

4. At the time the annual or block fee is charged to the patient, there are no specific services being rendered by the physician. A basic characteristic of the annual or block fee is that it is not dependent on the services performed - there may be no services, very few services, or there may be extensive services performed in connection with this fee. In addition, the exact type of service to be provided may or may not be predetermined. We understand that in all cases the patient who chooses the annual or block fee option will not be charged any additional amount no matter how many uninsured services are provided.

5. You advised that the annual or block fee is a payment for a plan that provides for a variety of medical and non-medical services to be provided to the patient. You indicated that in this context, "non-medical" services are services that fall outside the scope of the exemptions in Part II of Schedule V to the Excise Tax Act (the "ETA"). Some of the services covered under the annual or block fee plan may, if supplied individually, be considered exempt supplies for purposes of section 5 of Part II of Schedule V to the ETA, while other services covered under the plan are not exempt.

Ruling Requested

You are requesting a ruling that physicians are not required to collect the GST/HST on annual or block fees in the following two situations:

1. When the physician charges an annual or block fee only in relation to specific medical services that are described in a list. The list would not include non-medical services.

2. When the physician charges two separate and distinct annual or block fees. The first fee would relate to medical services described in one list while the second fee would relate to non-medical services described on a separate list. The GST/HST would apply only to the second fee relating to non-medical services.

Ruling Given

Based on the facts set out above, we rule that annual or block fees are consideration for a taxable supply of intangible personal property. Accordingly, the GST at the rate of 7% (or where applicable, the HST at the rate of 15%) applies to annual or block fees charged by physicians to their patients in the two situations noted above for which you requested a ruling.

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 ETA, or to our interpretative policy; and that you have fully described all necessary facts and transaction for which you requested a ruling.

Explanation

Section 5 of Part II of Schedule V to the ETA exempts a supply made by a physician of a consultative, diagnostic, treatment or other health care service rendered to an individual that is not performed solely for cosmetic purposes.

Annual or block fees are not consideration for a health care service rendered to an individual and at the time these fees are charged by a physician, no service was in fact rendered. Secondly, annual or block fees cannot be directly linked to any particular service provided as they are not dependent on the actual services provided. Annual or block fees are consideration payable by a patient for the "right" to future services. In effect, the annual or block fee is comparable to the purchase of a plan that covers a menu of services that a patient may request over the course of a specific time period. The "right" or the plan is not a supply of a service but of intangible personal property that is not exempt under section 5 of Part II of Schedule V to the ETA. Therefore, the annual or block fee represents consideration for a taxable supply. However, if the physician were not a registrant, then no GST/HST would be collectible on the fee.

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 and Governments Division