1 August 2003 GST/HST Interpretation 37258 - Services Supplied by a Corporate Entity

Dear XXXXX:

This is in reply to your facsimile XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to services supplied by a corporate entity, and whether the payments made by an emergency room ("ER") physician to an ophthalmologist falls within the Canada Customs and Revenue Agency's ("CCRA") policy relating to bona fide fee-sharing arrangements between medical practitioners.

As I advised in our telephone conversation XXXXX we are unable to provide a GST/HST ruling because your request pertains to matters that are primarily of fact and your letter contains insufficient information for us to establish all the pertinent facts. We would also require the identity of your client(s) involved in the scenarios for which you are requesting a GST/HST ruling, as well as third party authorization from your client(s) to certify that you may act on their behalf with respect to GST/HST matters. Please note that in order to ascertain the tax status of the corporate entity's supplies or whether the payment made by the emergency room physician falls within our policy regarding bona fide arrangements to share fees, we would require a complete description of the facts and each transaction, as well as any supporting agreements or documents, such as a contract between the ophthalmologist and the corporate entity, and between the ophthalmologist and the ER physician.

We are pleased to provide an interpretation of sections 2 and 10 of Part II of Schedule V to the Excise Tax Act (the "ETA"), the exemptions which are the subject of your request, and to give additional comments regarding our policy on bona fide fee sharing arrangements between medical practitioners.

Interpretation Requested

The scenario that you described in your letter involves a corporate entity that operates a private clinic to provide the following services to individuals using specialized equipment that it owns:

•   An XXXXX that uses laser technology to measure the ocular axis length, corneal radius and anterior chamber depth of the eye. These calculations would assist an eye surgeon in determining the strength and size of an intra-ocular lens required for implantation after cataract extractions.

•   A XXXXX that is used to map the optic nerves at the back of the eye for assisting a physician or surgeon in the early detection of glaucoma. The results also provide information on the efficacy of current medical and surgical treatment and management.

You advised that these services are not covered by the provincial health insurance plan; rather the corporate entity bills the individuals directly for the services provided in its clinic. From the information in your letter, we understand that some of the services provided in the clinic may be requested by an ophthalmologist and rendered by an ophthalmologist. However, with respect to the services rendered by the ophthalmologist, your letter does not indicate whether these services are separate supplies made by the ophthalmologist in the course of an independent medical practice or whether these services are a component of a supply made by the corporate entity. For instance, you stated that some of the individuals who receive services at the clinic are patients of the ophthalmologist, while other individuals to whom the ophthalmologist renders services at the clinic are patients of other medical practitioners.

In addition, you stated that an ER physician assists the ophthalmologist in providing pre-operative, post-operative and ongoing care of some of the ophthalmologist's patients. However, your letter does not indicate whether the ophthalmologist's activity of providing care to patients is undertaken in the course of an independent medical practices or whether this activity is a component of a supply made by the corporate entity.

You also advised that the ER physician is not remunerated by the corporate entity; rather the ER physician bills the provincial health insurance plan for his services. After the ER physician receives his fees from the provincial health insurance plan, he forwards XXXXX % to the ophthalmologist as a referral fee.

You are asking whether the corporate entity's supplies would fall within section 2 or section 10 of Part II of Schedule V to the ETA. In addition, you would like our comments on whether the payment made by the ER physician to the ophthalmologist would fall within the CCRA's policy relating to fee sharing arrangements between medical practitioners and as such, would not constitute consideration for a supply.

Interpretation Given

For the reasons indicated above, we are unable to provide a GST/HST ruling on the tax status of the corporate entity's supplies made to individuals. However, to assist your clients in fulfilling their obligations under the GST/HST, please note our interpretative approach to section 2 and section 10 of Part II of Schedule V to the ETA.

Section 2 of Part II of Schedule V to the ETA

This provision exempts a supply of an "institutional health care service" made by the operator of a "health care facility" when rendered to a patient of the facility. Both "institutional health care service" and "health care facility" are defined in the ETA. Pursuant to these definitions, a particular service, such as a diagnostic service, is not an "institutional health care service" unless the service is provided in a "health care facility".

A "health care facility" is defined in the ETA as a facility operated for the purpose of providing medical or hospital care, including acute, rehabilitative or chronic care. On the basis of this definition, a medical practitioner's independent practice, or a facility operated solely to provide testing services without any medical or hospital care, would not fall within the meaning of "health care facility".

Generally, private clinics are not health care facilities for purposes of the ETA. In our view, a private facility operated solely to perform tests is not a "health care facility" as defined in the ETA. These tests would not involve the provision of medical or hospital care to a patient and therefore we would not consider the private facility to be operated for the purpose of providing medical or hospital care, including acute, rehabilitative, or chronic care. Rather, as explained below, tests performed provided by private clinics would fall within section 10 of Part II of Schedule V to the ETA, where such tests are diagnostic services made on the order of a medical practitioner or practitioner.

Section 10 of Part II of Schedule V

This provision exempts the supply of a prescribed diagnostic service when made on the order of a medical practitioner (e.g., a physician) or practitioner (e.g., a chiropractor). A diagnostic service is considered to be the detection and determination of a disease by means of a study procedure and the report of findings.

The scope of the exemption is limited to prescribed diagnostic services described in the Health Care Services (GST/HST) Regulations. Accordingly, for purposes of section 10 of Part II of Schedule V to the ETA, a diagnostic service is a laboratory, radiological or other similar diagnostic service of the same kind as those generally available in a health care facility and includes the administration of drugs, biologicals or related preparations when provided in conjunction with this service.

Examples of exempt diagnostic services are serological tests, microscopic analysis, and diagnostic imaging (e.g., x-ray, CT scanning, MRI scanning, mammography and ultrasound) that are used to detect and determine the cause of a disease. The ETA provides that these diagnostic services remain exempt when they are provided outside a health care facility.

In our view, the XXXXX does not involve the provision of diagnostic services because it is used to measure parts of the eye for purposes of determining the strength and size of an intra-ocular lens, and not to detect a disease.

However, the XXXXX, which maps the optic nerves at the back of the eye to assist in the detection of glaucoma, is used in a diagnostic procedure and the test performed using this equipment would be considered a diagnostic service. If the test using the XXXXX is a diagnostic service that is generally available in a health care facility, then in our view this test would be of the same kind as laboratory and radiological diagnostic services enumerated in the Regulations. Accordingly, where the test using the XXXXX is supplied under the order of a medical practitioner or practitioner, the supply of this test by a private corporation would fall within section 10 of Part II of Schedule V to the ETA.

Fee-Sharing Arrangements Among Medical Practitioners

As noted above, whether the payment made by the ER physician falls within our policy regarding bona fide arrangements between medical practitioners to share fees is a question of fact. The CCRA's Policy Statement P-238, Application of the GST/HST to Payments Made Between Parties Within a Medical Practice Organization discusses several scenarios where such payments constitute consideration for a supply and where such payments are not regarded as consideration for a supply for purpose of the ETA.

Note that this policy applies only to payments made between two medical practitioners, as defined in the ETA, who are sole proprietors; it does not apply to corporate bodies. Under this policy, where two or more medical practitioners enter into a bona fide arrangement to share fees, the sharing of fees is not regarded as consideration for a supply for purposes of the ETA. There are no special criteria for purposes of the ETA as to what constitutes a bona fide fee sharing arrangement. Generally, it is our understanding that a bona fide fee sharing arrangement may occur in situations where two professionals agree to share the profits of their practices, or where two professionals share a fee billed to an individual where both professionals have provided services to that same individual. Because the policy only applies where a bona fide fee sharing arrangement exists, among the factors that the CCRA would consider is whether fee sharing can legally exist within the particular profession.

Therefore, if the ER physician makes a payment directly to the ophthalmologist where the ophthalmologist is operating as a sole proprietor separate from the incorporated entity, then whether the payment by the ER physician constitutes a bona fide fee sharing arrangement with the ophthalmologist as opposed to consideration for a supply will be a question of fact, as noted above.

Note that because the policy is limited to medical practitioners who are sole proprietors, payments made between a sole proprietor and an incorporated entity would not be considered a bona fide fee sharing arrangement between medical practitioners. Thus, if the ER physician in the scenario you presented makes a payment to the incorporated entity, then this payment will not be considered a bona fide fee sharing arrangement within the scope of the policy.

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.

Yours truly,

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