P-238 discusses fee sharing in the context of a practice involving a principal practitioner and a locum, and involving a principal practitioner and contract associates, and states:
[Where there is a] bona fide arrangement to share fees, the CCRA will not consider the payment by the associate to be in respect of a supply of administrative services made by the principal. The underlying characteristic of this arrangement is an apportionment of the fee for the health care service rendered to the individual between the parties. Thus, for purposes of the ETA, the amounts apportioned between the two parties are not subject to tax.
This seems to suggest that where one person (A) supplies exempt health care services to patients and engages a medical practitioner (B) to render those services to patients, then A’s supply to patients can be exempted (for example, under Sch. V, Pt. II, s. 5), and B’s supply to A can be exempted under s. 5.
a) What is a “bona fide arrangement to share fees”?
b) What is the statutory basis for exempting the apportionment of the fees under a bona fide arrangement to share fees?
c) Are exempt fee-sharing arrangements not limited to principal practitioner-locum and principal practitioner-contract associate arrangements?
d) To be an exempt fee-sharing arrangement, must the person supplying health care services to patients (A in the above description) be a licensed medical practitioner or medicine professional corporation under the applicable provincial law?
CRA responded:
a) According to law dictionaries and jurisprudence, the expression “bona fide” means “in good faith”, honestly, genuinely, without simulation or pretense.
The CRA considers “a bona fide arrangement to share fees” to be the arrangement that best represents the economic reality of the transaction.
b) There is no section in Part IX that specifically addresses the situation. We could consider the application of section 5 of Part II of Schedule V to the Excise Tax Act as a basis to that position in the case of medical practitioner. Where a physician who has patients hires a locum to fulfill their duties during their absence, it could be considered that the physician has subcontracted the care to the locum. The supply of services of the locum to a patient would be exempt under section 5 of Part II of Schedule V and the supply of services to the physician by the locum would also be exempt under section 5 as it is a supply of a consultative, diagnostic, treatment or other health care service that is rendered by a medical practitioner to an individual.
The same approach could be taken in respect of other professional services that can be exempt in Part II of Schedule V where the exemption refers to services rendered to an individual.
c) The CRA is not aware of arrangements that would be of a similar nature. It would be a question of fact.
Considering that health care services legislation is of provincial jurisdiction, the rules applying in the province would have to be considered. For example, fee sharing might be only allowed between professionals regulated by the same regulatory body.
d) In section 5 of Part II of Schedule V, for an exemption of a health care services to apply, the service has to be rendered by a physician who is entitled under the laws of a province to practise the profession of medicine.
The CRA considers that some exemptions can apply twice to the same service as the requirement is that the service be rendered by a medical practitioner or a practitioner as defined in section 1 of Part II of Schedule V.
