7 February 2000 GST/HST Interpretation 7369/HQR0000975 - Certain Activities Conducted by a Dental Practice

Dear Sir:

This is in reply to your facsimile message of November 13, 1997 sent to the XXXXX requesting an opinion on the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to certain operations of a dental practice. Your message was forwarded to us for reply. The subject of your enquiry has been under an extensive review. As a result of this review, we have clarified our position on the application of the GST/HST to payments made within medical practice organizations.

Please note that as of November 1, 1999, Revenue Canada became the Canada Customs and Revenue Agency (the "CCRA").

Interpretation Requested

You are requesting our opinion on whether or not supplies of dental hygienists and independent contractor dentists made by a trust to a sole proprietor are subject to the GST/HST under the provision of the Excise Tax Act (the "ETA"). On the basis of a telephone conversation with XXXXX XXXXX and a telephone conversation with Joyce Crago formerly of this office on September 14, 1998, our understanding of the scenario is as follows:

•   A dentist, a sole proprietor, owns and operates a dental practice.

•   The dentist has established a trust and the beneficiaries of the trust are the dentist's children.

•   The trust hires dental hygienists as employees and pays them an hourly employee wage. The trust also hires independent contractor dentists and pays them an amount based on the fees the sole proprietor bills to individuals for dental services (see below).

•   The trust makes available to the sole proprietor the services of its employees (i.e., the dental hygienists) and the independent contractor dentists. It charges an amount to the sole proprietor for the availability of the employees, i.e., the dental hygenists, and dentists.

•   The sole proprietor supplies the services of the independent contractor dentists and the dental hygienists to individuals. The sole proprietor bills the patients or insurance companies for these services. The sole proprietor collects the fees with respect to the dental services provided by the independent contractor dentists and the services provided by the dental hygienists.

•   The sole proprietor pays XXXXX of the billings to the trust. The trust pays XXXXX of this amount to the independent contractor dentists as payment for their services and retains the remaining XXXXX as a fee for providing the services of the independent contractor dentists to the sole proprietor. As stated above, the hygienists are employees of the trust and are remunerated by the trust based on an hourly wage.

Interpretation Given

Under the ETA, supplies are taxable unless an exempting provision applies. For instance, a supply of a consultative, diagnostic, or other health care service rendered by a medical practitioner to an individual is exempt of tax pursuant to section 5 of Part II of Schedule V to the ETA, and supplies of dental hygienists' services are exempt pursuant to section 8 of that Part.

Supplies made by the independent contractor dentists

In the situation described above, independent contractor dentists are making supplies of professional services to a trust, and receive their compensation from the trust. The trust will "resupply" the independent contractors' services to a sole proprietor. The exemption provided in section 5 of Part II of Schedule V to the ETA does not apply to this supply because the independent contractor dentists are not making a supply to the trust of rendering a dental service (i.e., health care service) to an individual. Rather, the independent contractor dentists are making a supply of their professional services to the trust for which the trust will "resupply" to a sole proprietor.

Consequently, the GST/HST at the rate of 7% applies to the amount payable by the trust to the independent contractor dentists (i.e., this amount is calculated as being equal to XXXXX of the fees billed to the individuals or insurance companies). There are no exempting provisions in the ETA that are applicable to this supply by the independent contractor dentists to the trust.

Supplies made by the trust

As explained above, the independent contractor dentists are making supplies of professional services to a trust, and receive their compensation from the trust. The "resupply" of the independent contractor dentists by the trust to the sole proprietor is a new supply that can be characterized as a supply of administrative services.

The trust is not a "medical practitioner" or "practitioner" as defined in section 1 of Part II of Schedule V to the ETA nor is it making a supply of a dental service. Consequently, none of the exempting provisions in that Part are applicable to this supply by the trust. If the trust is a registrant, it would be required to collect and remit the GST/HST at the rate of 7% calculated on the value of the consideration payable by the sole proprietor for this taxable supply. On the basis of the information provided, the value of the consideration for this taxable supply of administrative services made by the trust is equal to XXXXX of the fees the sole proprietor collects from the individuals and insurance companies in respect of the services provided by the independent contractor dentists.

The portion of the payment the trust receives from the sole proprietor that the trust does not pay to the independent contractor dentists is part of the total consideration paid by the sole proprietor.

The supply by the trust to the sole proprietor of the dental hygienists is exempt pursuant to section 8 of Part II of Schedule V to the ETA because the trust is making a supply of dental hygienist services. This provision provides an exemption for the supply of dental hygienist services, regardless of who makes the supply. Therefore, the GST/HST is not collectible by the trust on the portion of the payment made by the sole proprietor that is in respect of the dental hygienist services. The value of the consideration payable by the sole proprietor for this exempt supply is equal to XXXXX of the fees the sole proprietor collects from the individuals and insurance companies in respect of the dental hygienist services.

Supplies made by the sole proprietor

The sole proprietor is a dentist and as such, is a "medical practitioner" for the purposes of the ETA. Consequently, the supply by the sole proprietor of a dental service (other than cosmetic) rendered to an individual is exempt pursuant to section 5 of Part II of Schedule V to the ETA. Although an independent contractor dentist may actually perform the service that is rendered to the individual, it is the sole proprietor that is making the supply for the purposes of section 5. On the basis of the information provided, it is our view that the acquisition by the sole proprietor of the administrative services, i.e., the availability of independent contractor dentists from the trust, is a taxable input to an exempt supply made by the sole proprietor of rendering dental services to individuals.

The sole proprietor has acquired the dental hygienist services from the trust and is "resupplying" these services. As stated above, this is an exempt supply pursuant to section 8 of Part II of Schedule V to the ETA.

Consequently, the supply by the sole proprietor of dental services rendered to individuals and the services of the dental hygienist are exempt and no GST/HST is collectible on the fees billed to the individual or the insurance company for these services.

The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the ETA, if enacted, could have an effect on the interpretation provided herein. These comments are not rulings and, in accordance with the guidelines set out in section 1.4 of Chapter 1 of the GST/HST Memoranda Series, do not bind the CCRA with respect to a particular situation.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-6761.

Yours truly,

Susan Eastman
Municipalities and Health Care Services Unit
Public Service Bodies & Governments Division