MedSleep – Tax Court of Canada confirms the efficacy for GST/HST purposes of an agreement between a sleep clinic and physicians for 80/20 sharing of the physicians’ fees

MedSleep, which operated sleep clinics in five provinces, received referrals from family doctors of patients with suspected sleeping disorders, who then completed a questionnaire which was reviewed by a physician assigned to the patient by MedSleep (a “sleep physician”). The patient then stayed overnight at a MedSleep clinics for overnight polysomnographic examination, with the results reviewed by the assigned sleep physician, discussed with the patient, and with a report sent back to the referring family doctor.

For its services, MedSleep collected a fee (in BC and Ontario, directly from the provincial health plan). MedSleep also entered into fee-sharing agreements with the sleep physicians, under which it was entitled to a share (e.g., 20%) of the fees that they billed to their provincial health care plan.

In rejecting the Crown's position that such 20% share was taxable consideration for administrative, billing and marketing services supplied to the sleep physicians by MedSleep, Bodie J found that:

• The fee-sharing agreements were valid for tax purposes notwithstanding that, under provincial health care law, payments for physicians’ services could be made by the provincial health insurance plans to physicians only; and
• The fee-sharing agreements did not contemplate that MedSleep would provide the alleged admin and marketing services to the sleep physicians and they instead indicated that MedSleep was entitled to a portion of the professional fees generated from medical services provided to the patients.

Bodie J further found that MedSleep and the sleep physicians were making a single compound supply given that their health care services were “all interconnected and intertwined”.

In concluding that the supplies made by MedSleep to its patients were exempted under ETA s. V-II-2 (the consideration for which was both its directly charged fees and its 20% share of the sleep physicians' fees), Bodie J found that MedSleep, in tandem with the sleep physicians, supplied institutional health care services referred to in both paras. (a) and (c) of the definition of institutional health care services, being diagnostic services and the provision of sleep access to the clinic case rooms. The clinics were health care facilities because the sleep services constituted medical care being the diagnosis and evaluation for medical treatment of the patients, and the patients who received such treatment were patients of MedSleep.

The above findings also pointed to the sleep physicians not being “recipients” of services supplied by MedSleep.

Neal Armstrong. Summaries of Medsleep Inc. v. The King, 2025 TCC 70 under ETA s. V-II-2 and s. 123(1) - recipient.