7 August 2002 GST/HST Ruling 37204 - Application of the GST/HST to Supplies of Medical Reports

Dear Sir:

Thank you for your letter of XXXXX, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the supplies of medical reports made by XXXXX to insurance companies.

Further to our telephone conversation of XXXXX, our understanding of the facts is as follows:

Statement of Facts

1. XXXXX is a GST/HST registrant. It supplies medical reports relating to the medical condition of individuals, to insurance companies.

2. To supply the medical reports, XXXXX maintains a list of medical practitioners and it contracts with these medical practitioners for the preparation of the reports. In most cases, XXXXX directs the medical practitioner to send the medical report directly to the insurance company.

3. The medical practitioners prepare the reports after having performed independent medical examinations of individuals. The medical practitioners do not examine the individuals or prepare the reports on XXXXX premises.

4. The medical practitioners invoice XXXXX for the preparation of the reports.

5. XXXXX invoices the insurance company for the supply of the completed medical report. The consideration for this supply includes an amount to cover XXXXX cost to have the medical report prepared as well as a "set-up fee" which is an amount representing its fee for this supply.

Ruling Requested

XXXXX is required to collect the GST on the total amount it charges insurance companies for the supply of medical reports; i.e., the portion that represents recovery of the amount it paid the medical practitioners and the portion that represents its "set-up fee".

Ruling Given

Based on the facts set out above, XXXXX is required to collect the GST at the rate of 7% on the total amount (i.e., the consideration) it charges insurance companies for the supply of medical reports. The tax is calculated on the value of the consideration for this supply which is the total amount charged by XXXXX to the insurance companies. That is, the value of the consideration includes the recovery of XXXXX expenses incurred to make this supply and its "set-up fee".

Please note that services performed all or substantially all (i.e., 90% or more) in a participating province (i.e., Newfoundland and Labrador, Nova Scotia, and New Brunswick) are considered to have been performed in a participating province and to the extent that the services are taxable supplies (which are not zero-rated), tax must be collected at the harmonized rate of 15%.

This ruling is subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST/HST Memoranda Series. We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal; that there are no relevant changes in the future to the Excise Tax Act (the "ETA") or to Canada Customs and Revenue Agency ("CCRA") interpretative policy; and that you have fully described all necessary facts and transactions for which you requested a ruling.

Explanation

XXXXX is making a supply of medical reports to insurance companies. As there are no exempting provisions in the ETA that apply to this supply, the GST at the rate of 7% is collectible on the value of the consideration XXXXX charges the insurance companies for the medical reports. The value of the consideration for this taxable supply is composed of an amount to cover the fee XXXXX paid to the medical practitioners as well as a "set-up fee". Thus the "recovery" or "reimbursement" of XXXXX cost to make a taxable supply of a medical report constitutes part of the consideration for that supply.

You asked whether the recent Tax Court of Canada case, Riverfront Medical Evaluations Limited v HMQ has any impact on the operations of XXXXX with respect to its supplies of medical reports. We advised that there are fundamental differences in the operations of XXXXX and the operations presented in that court case. Therefore, the supplies of medical reports made by XXXXX do not fall within the scope of that court case. Please note that it continues to be the CCRA's position that medical reports supplied by corporations to third parties are not exempt under any of the provisions of Part II of Schedule V to the ETA. The CCRA is appealing the Tax Court of Canada's judgment.

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 and Governments Division