14 February 2003 External T.I. 2003-0000335 - TRANSFER INCOME TO PROFESSIONAL CORP

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

Principal Issues:

Will the income from the fees for medical services provided by a doctor's professional medical corporation be taxed in the hands of the individual doctor, rather than in the corporation, simply because the individual medical doctor's billing number must be used to obtain the remuneration from OHIP?

Position TAKEN:

Question of fact. If the doctor is contractually or legally precluded from transferring or assigning the billings to the corporation then the income must be reported by the doctor. If (1) the provincial laws and the regulatory body governing the relevant medical profession allows the corporation to practice medicine in Ontario, (2) the corporation is carrying on the business of the medical practice, (3) there is no legal prohibition against the doctor assigning or transferring the revenue from billings for medical services to the corporation, and (4) a valid written employment agreement containing certain terms is entered into between the parties, then the income would be reported by the corporation.

Reasons FOR POSITION TAKEN:

Consistent with prior positions, IT-189R2, and relevant jurisprudence.

XXXXXXXXXX Allan Nelson CMA
443-7253
2003-000033
February 14, 2003

Dear XXXXXXXXXX:

Re: Corporations Used by Medical Doctors (Ontario)
Technical Opinion Request

This is in reply to your facsimile of January 28, 2003, requesting our comments on whether certain income would be income of an individual doctor or income of that doctor's professional medical corporation. We also acknowledge our telephone conversations on January 31 and February 5, 2003 (XXXXXXXXXX/Nelson).

You note that each medical doctor has their own billing number, which they use to invoice and receive remuneration from the Ontario Health Insurance Plan ("OHIP") in respect of fees for services. Presently, under the Health Insurance Act (Ontario), only individual doctors are issued these billing numbers and not corporations. This is so notwithstanding that recent amendments to the Ontario Business Corporations Act now permit an Ontario licensed medical doctor to carry on their medical practice in Ontario through a professional medical corporation.

You have asked us to comment on the following hypothetical situation:

? a medical doctor incorporates a professional medical corporation in Ontario, as contemplated under the Ontario Business Corporations Act. The doctor is the sole shareholder of the corporation;

? the corporation does not carry on a personal services business (within the meaning of that term in subsection 125(7) of the Income Tax Act (Canada) (the "Act");

? the doctor enters into a valid written employment contract with the corporation to provide medical services on behalf of the corporation. The doctor is the sole employee of the corporation;

and

? the activities of the corporation and its relationship to its employee and clients are similar to those ordinarily associated with a corporation carrying on a business (i.e., the practice of medicine in this case). This is evidenced by the fact that the corporation's activities include all those listed in paragraph 1 of Interpretation Bulletin IT-189R2, except that the individual doctor must use his or her own billing number to obtain fees from OHIP for services provided by the corporation to its clients. As noted above, professional medical corporations are not issued billing numbers under the Health Insurance Act (Ontario) and therefore cannot directly bill OHIP for services rendered by its employee(s).

Based on the above facts, you have asked whether the income from the fees for medical services would be taxed in the hands of the individual doctor, rather than in the professional medical corporation, simply because the individual medical doctor's billing number was used to obtain the remuneration from OHIP.

Our Comments

As explained in Information Circular 70-6R5, it is not this Directorate's practice to comment on proposed transactions involving specific taxpayers other than in the form of an advance income tax ruling. If your situation involves a specific taxpayer and a completed transaction, you should submit all relevant facts and documentation to the appropriate Tax Services Office for their views. However, we are prepared to offer the following general comments, which may be of some assistance to you.

In our opinion, based on your hypothetical fact situation, the income represented by the doctor's fees for medical services provided on behalf of the corporation should be reported by the corporation, rather than the doctor, in situations where

? the doctor has entered into a valid written agreement with the corporation, whereunder the doctor performs all of their medical services as an employee of the corporation and the agreement stipulates that the corporation will be entitled to, and will receive, all revenues from the doctor's billings in respect of those medical services,

? the corporation is carrying on the business of the medical practice,

? the laws of Ontario and the regulatory body governing the medical profession in Ontario allow the professional medical corporation to practice medicine in Ontario, and

? there are no legal prohibitions (either contractual or legislative) against the doctor assigning or transferring the revenues from billings for medical services to the corporation.

Further, our opinion would not change solely because of the Ontario regulatory requirement that billings for medical services must be made in the individual doctor's name.

Ultimately, these matters involve a question of fact that must be addressed before definite answers can be given. We do not have sufficient information to comment further at this time.

Additional Comments

In accordance with paragraph 22 of Information Circular 70-6R5, the above comments are only an expression of opinion, and as such should not be construed as an advance income tax ruling, nor are they binding on the Canada Customs and Revenue Agency.

We hope the above will be of assistance to you.

Yours truly,

M. Azzi, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch

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