Please note that the following document, although correct at the time of issue, may not represent the current position of the Canada Revenue Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence du revenu du Canada.
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 165757
Business Number: […]
Dear [Client]:
Subject: GST/HST RULING
Application of GST/HST to Supplies made by a Medical Clinic
Thank you for your letter of [mm/dd/yyyy], concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to supplies made by […]([…][the Corporation]). More specifically you are asking if the Corporation’s revenues are exempt from the GST/HST and if the Corporation is entitled to claim input tax credits or a public service body rebate. We apologize for the delay in responding.
The HST applies in the participating provinces at the following rates: 13% in Ontario; and 15% in New Brunswick, Newfoundland and Labrador, Nova Scotia and Prince Edward Island. The GST applies in the rest of Canada at the rate of 5%.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
STATEMENT OF FACTS
We understand the following:
1. The Corporation was incorporated in […][Province X] on [mm/dd/yyyy] […].
2. […][Information provided by the Client about the Corporation].
3. The Corporation is registered for the GST/HST under business number […].
4. The Corporation operates a medical clinic (the “Clinic”) in […][Province X]. The Clinic opened in [mm/yyyy].
5. The [health care] services performed at the Clinic include: […]
6. […][Information about the Clinic].
7. […]. […][The relevant Regulatory Body in Province X] authorized the Corporation to provide the services at the Clinic.
8. The Corporation leases the office space for the Clinic, rents or owns all of the equipment, provides all of the medical supplies, employs all of the staff including the nurses and technicians, and provides […][certain drugs] used in the [rendering of the] services. The […][Service Providers], who are not employees of the Corporation, render the services […] at the Clinic.
9. The Corporation has […][an agreement] (the “Agreement”) with each of the [Service Providers] at the Clinic.
10. […][Terms of the Agreement]
11. […][The] Agreement lists the [volume and type of] […] services to be performed by the [Service Providers] and [information about payments due to the Corporation] […]
12. […][Additional conditions to be met by the Service Providers under the Agreement]
13. […][The Agreement] also states that the Corporation shall maintain appropriate liability insurance to indemnify the [Service Providers] and […]. The Corporation [will] […] provide the necessary facilities for the performance of the contracted services.
14. The […] Agreement states that the parties agree to a payment [of] […]% of all […][the Service Providers’ billings to the Province X Health Care Plan] […]
15. The invoices issued [by the Corporation] to the [Service Providers] detail the total [Service Provider] billings for the time period as per the […][Province X Health Care Plan] […], list the medical services and supplies to the [Service Provider], and calculate the amount payable to the Corporation [as indicated in Fact 14] […]. The medical services and supplies to the [Service Providers] are listed as: […]
16. […].
17. The Corporation does not have any revenues other than the amounts [described in Fact 14] […]. All of the procedures performed on the patients are covered under [Province X Health Care Plan]. […].
18. […]
[…]
RULING REQUESTED
You would like to know the following:
1. Are the Corporation’s revenues exempt from HST?
2. Is the Corporation able to claim input tax credits?
3. Is the Corporation able to claim a public service body rebate?
RULING GIVEN
Based on the facts set out above, we rule that:
1. The supplies made by the Corporation are not exempt from GST/HST and are subject to GST/HST at the applicable rate pursuant to section 165 of the ETA.
2. The Corporation is eligible to claim input tax credits pursuant to section 169 of the ETA.
3. The Corporation is not eligible to claim a public service body rebate.
EXPLANATION
Generally, every recipient of a taxable supply (other than a zero-rated supply) made in Canada is required to pay GST/HST at the rate of 5%, 13%, or 15% (depending on the province in which the supply is made) on the value of the consideration for the supply. […]. Exempt supplies are listed in Schedule V and are not subject to GST/HST. Part II of Schedule V lists certain health care services that are exempt from GST/HST. For a supply of property or a service to be exempt from GST/HST under Part II of Schedule V a specific exempting provision included in that Part must apply to that supply.
In your letter you indicate that you believe that the Corporation is making exempt supplies as the consideration for the supplies is made up of fees paid by [the Province X Health Care Plan]. Section 9 of Part II of Schedule V exempts a “supply (other than a zero-rated supply) of any property or service but only if, and to the extent that, the consideration for the supply is payable or reimbursed by the government of a province under a plan established under an Act of the legislature of the province to provide for health care services for all insured persons of the province.”[The Province X Health Care Plan] is a plan established under [Province X legislation (the Legislation)] […]. Accordingly to the extent that a supply of a health care service is paid or reimbursed under [the Province X Health Care Plan], the supply is exempt under section 9 of Part II of Schedule V.
Payment for the services rendered in the Clinic are paid by [the Province X Health Care Plan] to the [Service Providers] who pay a set percentage of the billings to the Corporation. We now must determine whether the [Service Provider] or the Corporation is making the supply described in section 9. For this purpose, the legal form of transactions and the relationships among the parties matter. In this case, as the Corporation has written agreements with the [Service Providers], we will look at the Agreement as well as the structure of the payments to determine which of the parties are making the supplies and the tax status of those supplies.
In order to determine the tax status of the supplies made by the Corporation we must first determine if the consideration for those supplies is paid by [the Province X Health Care Plan] or the [Service Providers]. […][X%] of the services that are provided in the Clinic are insured services […][under the Province X Health Care Plan]. […]. The payment terms of the Agreement states that the Corporation will receive […]% [of the fees charged for services performed in the Clinic that are covered by the] […] [Province X Health Care Plan]. The fact that the Corporation receives a portion of the [Province X Health Care Plan] fees does not mean that [the Province X Health Care Plan] pays the Corporation. Depending on the structure of the payments, the […] fees may be a payment made by the [Service Providers] to the Corporation.
[The Province X Health Care Plan] is liable to pay the consideration for the supply described in section 9. The statutory regime for the payments by [the Province X Health Care Plan] for insured services is governed by the […][Legislation]. [Under the Legislation] […]. Therefore, [the Province X Health Care Plan] is paying consideration to the [Service Providers] for supplies of insured services whether the payment is paid directly to the [Service Provider] or paid to a different entity on the direction of the [Service Provider].
Therefore, the supply made by the [Service Providers] is exempt pursuant to section 9 of Part II of Schedule V as the consideration paid by [the Province X Health Care Plan] is paid by the government of a province under a health care plan.
Supplies made to the [Service Providers]
The […][payment to the Corporation] is consideration paid by the [Service Providers] for the supplies made by the Corporation. The GST/HST is a transactional tax and the tax status of each transaction is determined based on the facts of the particular transaction. As the Corporation’s revenues consist solely of a portion of the […][fees paid to the] [Service Provider] […] for the services rendered at the Clinic, it is necessary to determine what the Corporation is supplying to receive those revenues. To properly characterize the supplies made by the Corporation we must look at the terms of the Agreement between the Corporation and the [Service Providers]. The invoices that the Corporation sends to the [Service Providers] and the marketing material […][used by] the Corporation […] can also be looked at to characterize the Corporation’s supply.
Agreement
The Agreement outlines the responsibilities of the Corporation and the [Service Providers] in respect of the services that are rendered at the Clinic. The […] Agreement indicates that the [Service Providers] agree to provide the services as described in […] through their profession […]. […]
[…]
The […] section of the Agreement requires that the Corporation provide the necessary facilities for the [Service Providers] to perform the contracted services. The Corporation also must maintain appropriate […][insurance].
The Agreement states that the parties agree to […] payments [to the Service Providers]. […]. As discussed above, the […][payment] is actually consideration paid by the [Service Provider] to the Corporation for supplies made by the Corporation. The Agreement requires the Corporation to provide the [Service Providers] with the use of facilities to perform the services, […] insurance, and […][administrative services]. This indicates that the Corporation is making a supply of administrative services and the use of the facilities to the [Service Providers].
Billing
The Corporation invoices each [Service Provider] to receive […] [the] payments referred to in the Agreement. The invoice to each [Service Provider] lists the total billings based on the […][fees allowed under the Province X Health Care Plan ] and calculates the Corporation’s amount as […]% of the total billings. It also states that the invoice is for medical services and supplies to [Service Providers] and lists the following items: […]
The items listed on the invoices given to the [Service Providers] indicate that the Corporation is making supplies of administrative services to the [Service Providers] […]
Marketing Material
[…][Information about the approach used by the Client to market the Corporation’s facilities and administrative services]
The Agreement, the invoices sent to the [Service Providers] and the marketing material indicate that the Corporation is making a supply of facilities and administrative services to the [Service Providers]. The Agreement requires that the Corporation provide the [Service Providers] with the necessary facilities to […][render] the contracted services […][and also requires that the Corporation maintain] liability insurance for the [Service Providers] [and] […]. The invoices indicate that the Corporation supplies administrative services […]. The marketing material describes the Corporation as supplying facilities and administrative services.
The terms of the Agreement, the invoices and the marketing material demonstrate that the Corporation is making a single supply of administrative services to the [Service Providers]. Based on the facts presented, it is our view that the percentage of [the Province X Health Care Plan] fees that are paid by the [Service Providers] to the Corporation constitutes consideration for a taxable supply of administrative services.
Input Tax Credits
Generally, where a person acquires or imports property or a service and, during a reporting period of the person in which the person is a registrant, the GST/HST in respect of the property or service becomes payable by the person or is paid by the person without having become payable, that person may be eligible to claim an ITC in respect of the tax to the extent (expressed as a percentage) the property or service is acquired or imported for consumption, use or supply in the course of the person's commercial activities (i.e., to make taxable supplies for consideration). Please note, there are special rules regarding entitlement to claim ITCs for capital personal property and capital real property.
In the present case, the supplies made by the Corporation to the [Service Providers] are taxable supplies made for consideration in the course of commercial activities of the Corporation. Therefore, the Corporation is entitled to claim an ITC in respect of the GST/HST that became payable or was paid for property or services it acquired for consumption, use or supply in the course of these commercial activities, where all of the other conditions for claiming an ITC are met.
However, where property or a service is acquired by a person in part for making taxable supplies for consideration and in part otherwise than for making taxable supplies for consideration, for example for consumption, use or supply in exempt activities or for personal use, an allocation of the GST/HST paid on the property or service is required. The person is not eligible to claim an ITC in respect of the GST/HST paid on the property or service to the extent (expressed as a percentage) that the property or service is acquired or imported otherwise than for consumption, use or supply in the course of the person's commercial activities. Generally, an ITC must be claimed by the due date of the GST/HST return for the last reporting period to end within four years after the end of the reporting period in which the GST/HST became payable or was paid without becoming payable. For more information on the general rules for claiming input tax credits, see GST/HST Memoranda Series 8.1, General Eligibility Rules that is available on our website.
Public Service Body Rebate
Certain public service bodies (PSBs) are eligible to claim a PSB rebate of a percentage of the GST and the federal part of the HST paid or payable on eligible purchases and expenses. A PSB resident in […][a participating province] may also be eligible to claim a rebate of the provincial part of the HST. A PSB is eligible for a PSB rebate if it is a charity, a qualifying non-profit organization or a selected public service body on the last day of a claim period or on the last day of the fiscal year that includes that claim period. A selected public service body is:
* a school authority, a university, or a public college that is established and operated otherwise than for profit,
* a hospital authority,
* a municipality,
* a facility operator or
* an external supplier.
The Corporation is not a charity, school authority, university, public college, hospital authority or municipality. Therefore in order to be able to claim a public service bodies rebate the Corporation would have to be a qualifying non-profit organization, facility operator or external supplier. The definitions of the terms “facility operator” and “external supplier” are found in subsection 259(1). To be a facility operator or external supplier a person must be a charity or qualifying non-profit organization. The Corporation is not a charity so it must be a qualifying non-profit organization to meet the first condition of the definitions of “facility operator” and “external supplier.”
“Qualifying non-profit organization”, as defined in subsection 259(2), means a non-profit organization or prescribed government organization whose percentage of government funding for the year is at least 40% of its total revenue. Subsection 123(1) defines “non-profit organization” to mean “a person (other than an individual, an estate, a trust, a charity, a public institution, a municipality or a government) that was organized and is operated solely for a purpose other than profit, no part of the income of which is payable to, or otherwise available for the personal benefit of, any proprietor, member or shareholder thereof unless the proprietor, member or shareholder is a club, a society or an association the primary purpose and function of which is the promotion of amateur athletics in Canada. The definition of “non-profit organization” is expanded for purposes of the public service bodies' rebate. The expanded definition would include a person that is a specified Crown agent or an agent of Her Majesty in right of a province and that would be a non-profit organization within the meaning assigned by subsection 123(1) if the definition of that expression were read without reference to “a government”.
[…]. [Based on the information provided], the Corporation […][is not a] qualifying non-profit organization and would not meet the definition of “facility operator” or “external supplier”.
Given all of the preceding, the Corporation is not an entity that would be eligible to claim a PSB rebate.
[…]
[Disclosure]
In general, subsection 223(1) of the ETA provides that where […] a registrant makes a taxable supply, other than a zero-rated supply, the […][GST/HST registrant] is required to indicate in the invoice, receipt or written agreement, the consideration paid or payable by the recipient of the supply and the tax payable in respect of the supply in a manner that clearly indicates the amount of the tax. Where the amount paid or payable by the recipient includes the tax, there must be an indication [of disclosure] in the invoice, receipt or written agreement that the amount paid or payable includes the tax payable in respect of the supply.
[A GST/HST registrant], where there are no contractual or common law restrictions, can issue an amended or additional invoice to the recipient that meets the disclosure requirements. However, the [GST/HST registrant] is still required to account for the GST/HST that became collectible in respect of the taxable supply in its net tax calculation reported on its GST/HST return for the reporting period in which that tax became payable and to remit any positive amount of net tax. If the GST/HST return for that reporting period has already been filed, the [GST/HST registrant] can request an amendment to that return.
[…]
For more information about the obligations of registrants and the disclosure of tax, please see GST/HST Memorandum 3-1, Liability for Tax.
In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, the Canada Revenue Agency (CRA) is bound by the ruling(s) given in this letter provided that no future changes to the ETA, regulations or the CRA’s interpretative policy affect its validity; and all relevant facts and transactions have been fully and accurately disclosed.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-954-4395. Should you have additional questions on the interpretation and application of GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.
Yours truly,
Art Blommesteijn
Health Care Sectors Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate
FOOTNOTES
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