8 May 2003 GST/HST Interpretation 44804 - Tax Status of Assessors' Supplies to

Dear XXXXX

Interpretation Requested

XXXXX

Interpretation Given

XXXXX

The ETA definition is as follows:

"institutional health care service" means any of the following when provided in a health care facility:

(a) laboratory, radiological or other diagnostic services,

(b) drugs, biologicals or related preparations when administered, or a medical or surgical prosthesis when installed, in the facility in conjunction with the supply of a service included in any of paragraphs (a) to (g),

(c) the use of operating rooms, case rooms or anaesthetic facilities, including necessary equipment or supplies,

(d) medical or surgical equipment or supplies

(i) used by the operator of the facility in providing a service included in any of paragraphs (a) to (c) and (e) to (g), or

(ii) supplied to a patient or resident of the facility otherwise than by way of sale,

(e) the use of radiotherapy, physiotherapy or occupational therapy facilities,

(f) accommodation,

(g) meals (other than meals served in a restaurant, cafeteria or similar eating establishment), and

(h) services rendered by persons who receive remuneration therefore from the operator of the facility;

"XXXXX General interpretative approach to supplies of "institutional health care service"

Under the GST/HST, the tax status of goods and services may vary depending on the supplier and the circumstances of the supply. For instance, a particular service that is subject to tax when acquired may become exempt when it is "resupplied" by another person. A typical example of the change in tax status occurs in the case of an operator of a health care facility. When the operator acquires goods and services to use or consume in the course of supplying institutional health care services, the operator's acquisition of goods and services such as medical equipment, security services, utilities, personal services, etc., are subject to the GST/HST at the rate of 7% or 15%. However, when the operator bundles these goods and services together and renders them as a "package" to the facility's patients, this package is considered to be a composite exempt supply of an institutional health care service.

Generally speaking, when a person makes supplies through its employees or other individuals such as independent contractors, the services performed by the employees or independent contractors become the activities of the person. This structure also applies when the operator of a health care facility employs physicians, nurses and other health care professionals for the purpose of supplying health care services to its patients. For instance, when a technician or a physician receives remuneration from the operator of a hospital to perform specific tasks for the hospital, such as operating laboratory equipment or examining patients of the hospital, these services performed by the technician or physician form part of the hospital operator's activities.

Services rendered by persons who receive remuneration from the operator of a health care facility fall under paragraph (h) of the definition of "institutional health care service" in the ETA (see footnote on page 2). An institutional health care service supplied by the operator of a health care facility is a composite package that may be comprised of the use of facilities, accommodation, meals, services performed by employees and/or independent contractors (e.g., physicians and other health care professionals), the administration of drugs, laboratory, radiological or other diagnostic services, etc., rendered to a patient of the facility. The operator acquires various "inputs" needed to make this supply and assembles them together. The aggregate of these inputs forms the composite supply that is rendered to the individual.

As a component of a composite supply made by the operator of the health care facility, the service rendered by an employee or independent contractor constitutes an activity of the operator. As such, the employee or independent contractor's service is a component of the supply made by the operator that is exempt under section 2 of Part II of Schedule V to the ETA where the service is rendered to a patient of the facility.

Under the ETA, services provided by employees to their employers are not supplies, and therefore no GST/HST applies to wages or salaries paid to employees. In contrast, services provided by independent contractors are supplies. We would generally view these supplies as contracts for personal or professional services and the GST/HST applies to the amounts paid to independent contractors. When the operator of a health care facility hires an independent contractor to provide services on the operator's behalf, this contract is an input used or consumed by the operator in the course of the operator's activity of rendering health care services to its patients. There is no difference between this input and any other input that the operator of a health care facility may use or consume in the course of its activities. The fact that the operator used or consumed the various inputs in the course of making an exempt supply has no impact on the tax status of the inputs when the operator acquired them because the manner in which the operator uses or consumes those inputs is differentiated from what was supplied to the operator.

While the service performed by an independent contractor may be medical in nature or another type of professional service, the independent contractor's supply is not the same supply as that made by the operator. In order for the supply to be exempt, the independent contractor's supply must be that of a health care service rendered to an individual. However, this criterion is not met where the independent contractor's service is an input that forms a component of a supply made by the operator of a health care facility (or made by any another person).

Because the independent contractor's service is linked to the health care facility operator's supply, the independent contractor's supply is not itself a discrete supply of a health care service rendered to an individual. In addition, because the independent contractor's service is a component of a composite package, the nature of an independent contractor's supply made to the operator is not analogous to the composite package that is supplied by the operator. The result is that the independent contractor's supply to the operator falls outside the scope of the exemptions included in Schedule V to the ETA.

Note that even if the operator's invoice to the recipient includes an amount to recover the cost of the independent contractor's services, this cost is not itself a separate supply but simply part of the consideration charged by the operator for its supply of an institutional health care service.

For example, the operator of a health care facility acts on a request to render an institutional health care service to a patient of the facility that involves a radiological service. That supply consists of accommodation, the use of facilities and equipment, the operation of radiology equipment by a technician, and the interpretation of the produced images by a radiologist that is provided to the patient. All of these activities are components of the operator's supply. As such, each activity on its own is not an institutional health care service nor is each activity equal to the composite whole. Because the operator is the supplier of the radiological service, and this supply is the aggregate of various goods and services where the services performed by the technician and the radiologist are inputs to that supply, for ETA purposes the technician or the radiologist did not provide a discrete radiological service to the patient. If the technician or the radiologist were an independent contractor, they would be making a taxable supply to the operator.

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 Governments Division