19 April 2007 GST/HST Interpretation 84251 - Application of the GST/HST to XXXXX leases and trade-ins

Please note that the following document, although correct at the time of issue, may not represent the current position of the Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence.

Excise and GST/HST Rulings Directorate Place de Ville, Tower A, 15th floor 320 Queen Street Ottawa ON K1A 0L5XXXXX XXXXX XXXXX XXXXX	Case Number: 84251
XXXXX XXXXX	April 19, 2007

Subject:

GST/HST RULING Independent Medical Examinations and Related Services

Dear XXXXX:

Thank you for your letter XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to supplies made by your company, XXXXX, of independent medical examinations (IMEs) and medical-legal examinations, as well as other related services involving file reviews and fees charged for missed appointments.

All legislative references are to the Excise Tax Act (ETA) and the regulations thereunder, unless otherwise specified.

Statement of Facts

On the basis of your letter, our understanding of the facts and transactions is as follows:

IMEs and medical legal examinations

1. XXXXX (the Corporation) specializes in providing third party ^[xviii]footnote 1 XXXXX evaluations to insurance companies and lawyers in a variety of situations including:

(a) Personal injury claims;

(b) Medical, legal and other malpractice claims;

(c) Disability claims;

(d) Disputes with respect to marital separation and breakdown; and

(e) Employment lawsuits.

2. The Corporation operates a facility in which various activities take place. To supply the third party XXXXX evaluations, which you have grouped under the category of IMEs and medical-legal examinations, the Corporation employs XXXXX who receive a salary for their services of providing expert opinions and it also hires independent contractor XXXXX who bill the Corporation for their expert opinions on a case-by-case basis.

3. Claimants attend the facility operated by the Corporation to be examined by a XXXXX who is remunerated by the Corporation (by salary or on a fee-for-service basis) to render this examination and expert opinion. The Corporation registers these claimants at its facility. The typing of the reports and the billings to third parties are performed at the facility.

4. In the course of preparing the expert opinion, the XXXXX review documentation and dictate the reports elsewhere and these activities represent a substantial proportion of their work.

5. The Corporation supplies completed expert opinion reports prepared by the XXXXX to the third party (insurance company or lawyer) requesting the opinions and bills for all work entailed in the preparation of the opinions.

Review of documentation

6. These supplies made by the Corporation consist of a review of medical and other documentation by a XXXXX and the provision of a XXXXX opinion that does not involve directly assessing a claimant; i.e., there is no examination of the claimant.

7. Generally, the XXXXX review of the documentation and dictation of the report does not take place at the facility operated by the Corporation, while administrative services, such as typing and billing, are performed at the facility.

File reviews undertaken at the premises of insurance companies

8. These supplies consist of a XXXXX attending the premises of an insurance company to review claimant files and offer a XXXXX opinion contained in a report with respect to disability and allied matters.

9. The XXXXX may also discuss issues with adjudicators and other personnel at the insurance company and occasionally seek clarification from a claimant's health care providers.

10. None of this work takes place at a health care facility and at no time in the course of this work does the XXXXX meet the claimant, speak with the claimant or otherwise examine or interact with the claimant.

Missed appointments

11. The Corporation charges a fee to claimants who are the subject of a third party assessment when they miss their appointments. In addition, we understand that there are other situations where individuals may also attend the facility operated by the Corporation to receive an insured service covered by the XXXXX. When an appointment is missed or cancelled, the Corporation does not provide an examination, report or other service to the claimant or the third party requesting the examination, or any service to the insured individual. The fee is simply intended as compensation for the claimant or individual having missed or cancelled the appointment.

Rulings Requested

You would like to know whether the supplies made by the Corporation in the following situations to insurance companies and lawyers are exempt from GST/HST:

•   Third party XXXXX evaluations where claimants attend the facility operated by the Corporation to be examined by a XXXXX whether the XXXXX receives a salary as an employee or is paid on a fee-for-service basis as an independent contractor.

•   A XXXXX opinion based on a review of documentation by a XXXXX that is performed at a separate location away from the facility operated by the Corporation.

•   A XXXXX opinion based on a file review undertaken by XXXXX at the premises of insurance companies.

•   Fees charged by the Corporation for missed appointments.

In addition, you would also like to know whether GST/HST should be charged on the consideration for the supply of a XXXXX opinion made by the independent contractor XXXXX to the Corporation when the XXXXX renders services, e.g., reviews the claimant's medical documentation, outside a health care facility.

Rulings Given

Based on the facts set out above, we rule the following:

•   Supplies made by the Corporation of third party XXXXX evaluations of claimants where the claimants attend the facility operated by the Corporation to be examined by a XXXXX who is remunerated by the Corporation for rendering the examination and providing the evaluation, whether by salary as an employee or on a fee-for-service basis as an independent contractor, are exempt pursuant to section 2 of Part II of Schedule V.

•   Supplies made by the Corporation of a XXXXX opinion based on a review of documentation by a XXXXX that is performed at a separate location away from the facility operated by the Corporation (i.e., the review does not take place at the Corporation's facility) are taxable pursuant to section 165. The value of the consideration for these supplies is subject to the 6%/14% GST/HST.

•   Supplies made by the Corporation of a XXXXX opinion based on a file review undertaken by XXXXX at the premises of insurance companies, including discussing issues with adjudicators and other personnel, are taxable pursuant to section 165. The value of the consideration for these supplies is subject to the 6%/14% GST/HST.

•   It is the CRA's position that fees paid for missed and cancelled appointments, to the extent that these fees are not payment for a supply of property or a service, are not consideration for a supply and therefore no GST/HST would apply to these fees. Similarly, where these fees are paid in relation to exempt supplies no GST/HST would apply. However, as discussed in the Explanation below there are situations where the GST/HST is required to be remitted on such fees relating to taxable supplies.

•   A supply made by an independent contractor XXXXX to the Corporation of providing a XXXXX opinion based on a review of a claimant's medical file, whether the services rendered to provide this opinion take place outside a health care facility is exempt pursuant to section 5 of Part II of Schedule V.

These rulings are subject to the qualifications in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service. We are bound by these rulings provided that none of the above issues are currently under audit, objection, or appeal, that no future changes to the ETA, regulations or our interpretative policy affect its validity, and all relevant facts and transactions have been fully disclosed.

Explanation

Institutional health care services

Section 2 of Part II of Schedule V exempts a supply of an "institutional health care service" made by the operator of a "health care facility" if the service is rendered to a patient of the facility. The position set out in GST/HST Policy Statement P-248, The Application of the GST/HST to the Supply of Independent Medical Examinations ("IME") and to Other Independent Assessments, which was released on September 21, 2006, regarding the application of this exempting provision to supplies of IMEs follows the Tax Court of Canada and the Federal Court of Appeal decisions in Riverfront Medical Evaluations v. The Queen. As stated in the Policy, the effective date of this position is June 8, 2001, which is the date of the Tax Court of Canada decision. However, if the Canada Revenue Agency (CRA) has issued a specific interpretation that differs from this policy, the policy would be applied to the affected person on the earlier of the day the CRA made the public aware of this policy or informs the person in writing of the application of the tax to their transactions.

A "health care facility" is defined in section 1 of Part II of Schedule V and it includes a facility, or part thereof, operated for the purpose of providing medical care. The CRA's position regarding the meaning of this phrase is that it is describing a facility operated for the purpose of providing care to patients by physicians acting in the course of the practice of medicine, which would include the practice of XXXXX. The significance of the definition of "institutional health care service" for purposes of section 2 of Part II of Schedule V is to exempt certain services that are provided in the supplier's health care facility (i.e., the operator) when they are rendered to a patient of the facility.

The definition of "institutional health care service" includes services provided in a health care facility when rendered by persons who are remunerated by the operator of the facility for those services. Services rendered by physicians who receive remuneration from the operator of a health care facility for their services fall within this definition when these services are provided in the operator's facility.

We understand that the "claimants" who are the subject of the third party reports are individuals. As explained in the Policy, it is our position that these individuals are patients of a health care facility when these individuals are registered as patients with the operator of the facility and the operator maintains medical records on these individuals. We consider IMEs and medical-legal examinations to be an institutional health care service rendered to patients of a health care facility by the operator of that facility where the following factors are present:

•   the operator arranges for the patient to be examined by a physician to whom the operator provides remuneration for this examination; and

•   where the patient attends the operator's facility, the physician examines the patient in the operator's facility and provides an expert opinion regarding the diagnosis, prognosis, or assessment of the degree of impairment, if any, of the patient; or

•   where the service consists of a review of the patient's medical file, the physician reviews the medical file in the operator's facility and provides an expert opinion regarding the diagnosis, prognosis, or assessment of the degree of impairment, if any, of the patient.

If the above-noted factors are present, the supply made by the Corporation of a third party XXXXX evaluation is an exempt supply of an institutional health care service described in section 2 of Part II of Schedule V, notwithstanding that the preparation of the expert opinion report included some activities, e.g., review of documentation and dictation of the report, that the XXXXX performed elsewhere.

Supplies that do not include the above-noted factors, i.e.; a physician does not examine a patient or review a patient's medical file at the health care facility operated by the supplier, are not institutional health care services. Accordingly, the exemption in section 2 of Part II of Schedule V cannot apply to supplies made by the Corporation to insurance companies and lawyers of XXXXX opinions consisting of the review of documentation by a XXXXX performed at a separate location away from the facility operated by the Corporation (i.e., the review does not take place at the Corporation's facility) and to XXXXX opinions consisting of the review of files by a XXXXX performed at the premises of insurance companies.

Supplies made by independent contractor XXXXX to the Corporation

Although the Corporation's supplies to insurance companies and lawyers where a XXXXX does not examine a patient or review a patient's medical file at the health care facility operated by the Corporation are taxable, the tax status of the supplies made by the independent contractor XXXXX to the Corporation differs. On the basis of the information provided, we understand that the XXXXX opinions involve activities of two or more suppliers; i.e., the Corporation and the independent contractor XXXXX. The GST/HST is a transactional tax and therefore, the supply made by each supplier represents a separate transaction the tax status of which is evaluated separately. This evaluation requires an understanding of the nature of the services provided by the supplier in each transaction. Although each supplier contributes to a single XXXXX opinion report, their supplies are distinguishable transactions in this chain of events.

Essentially, we understand that the Corporation contracts with independent contractor XXXXX on a case-by-case basis for a XXXXX evaluation of an individual based on a review of the individual's medical and other documentation. This supply of a XXXXX evaluation made by the XXXXX to the Corporation is an exempt supply described in section 5 of Part II of Schedule V; i.e., a supply made by a medical practitioner of a consultative, diagnostic, treatment or other health care service rendered to an individual. The application of this section is not dependent on the services being rendered at a particular location. Therefore, a supply made by a XXXXX of a XXXXX evaluation rendered to an individual where the XXXXX renders the evaluation outside a health care facility is exempt.

Cancellation Fees

Generally, fees paid for missed or cancelled appointments, to the extent that these fees are not payment for a supply of property or a service, are not consideration for a supply. Exceptions to this position are described in section 182. Where this section applies, the GST/HST is required to be remitted on such fees relating to taxable supplies.

Subsection 182(1) is a deeming provision where the amount paid for a breach, modification or termination of an agreement, such as a cancellation fee, is treated as consideration for the intended taxable supply. This provision deems the recipient of the supply to have paid and the registrant (the supplier) to have collected the GST/HST on that deemed consideration at the time the fee is paid so that the supplier is deemed to have collected tax equal to 6/106ths or 14/114ths of the amount paid as a result of the cancellation. Accordingly, the Corporation would be deemed to have collected GST/HST on the deemed consideration for cancellation fees charged in relation to taxable supplies.

However, fees charged for missed or cancelled appointments in relation to exempt supplies are not covered by section 182 and therefore, the Corporation would not be required to remit any GST/HST on such fees.

OTHER INFORMATION

In your letter you questioned whether a XXXXX who reviews documentation and prepares reports in his or her home would be entitled to deduct certain expenses for income tax purposes with respect to these activities. For information regarding the deductibility of business expenses for income tax purposes, please call the Business Enquiries telephone line at 1-800-959-5525.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-952-6761.

Yours truly,

Susan Eastman
Municipalities and Health Care Services Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate

2007/04/03 — RITS 85543 — Supplies of Occupational Therapy Services