GST/HST Implications in Canada’s Evolving Healthcare Landscape

Written by Nathan T. Sheppard, CD, BBA, CPA Kingston Ross Pasnak LLP

In the ever-evolving landscape of healthcare in Canada, the proposed amendments to the exemption provisions of Excise Tax Act (ETA) Schedule V, Part II, found in Bill C-59, have sparked further discussions within the industry. The inclusion of “psychotherapy” and “counselling therapy” in the list of exempt services provides an opportune moment to delve into the potential Goods and Services Tax/Harmonized Sales Tax (GST/HST) implications that healthcare professionals may encounter.

GST/HST risks become more pronounced when there is a combination of taxable supplies and exempt supplies. To understand these implications, it’s crucial to differentiate between medical services that are exempt and those that constitute taxable supplies.

Medical practitioners

“Medical practitioners,” as defined in the ETA, encompass only those practicing medicine or dentistry. Typically, they primarily provide exempt supplies of medical services. However, one GST/HST distinction lies in services not rendered specifically to a patient or resident. Activities such as providing opinions to insurance companies or offering services at events unrelated to patient care may be deemed taxable. Additionally, cosmetic services not serving “medical or reconstructive purposes” fall under the taxable category.

Other practitioners

Optometrists, chiropractors, physiotherapists, and other healthcare professionals are covered under ETA Schedule V, Part II, Section 7, which specifies various services by a broader term, “practitioner.” The pending inclusion of psychotherapy and counselling therapy under this section, contingent on the passage of Bill C-59, adds complexity. Services must be rendered to an individual by a qualified practitioner, defined separately from a medical practitioner. For practitioners in provinces without specific regulations, having qualifications equivalent to those necessary to practice in a regulated province is deemed acceptable.

Single or multiple supplies?

A critical consideration in the healthcare sector is the concept of single supplies versus multiple supplies. Professionals like optometrists and dentists often engage in the purchase and sale of taxable (zero-rated) medical supplies and devices, taxable (at the normal rate) cosmetic services, and exempt medical services. The GST/HST framework distinguishes between single and multiple supplies, determining whether the entire service is a single supply and identifying the predominant supply. If the predominant supply is exempt, no tax is collected, but Input Tax Credits (ITCs) are disallowed – even those related to the portion of the service that would be a taxable supply on its own. Unfortunately, this complexity has frequently led dentists to Tax Court in recent years.

Hopefully, the recent decision from the Federal Court of Appeal in His Majesty the King (Appellant) v. Dr. Kevin L. Davis Dentistry Professional Corporation (Respondent) (April 12, 2023) will have finally provided some much-needed clarity. In the case, the Federal Court of Appeal ruled that the legal tests established for single vs multiple supply in O.A. Brown Ltd. (Appellant) v. Her Majesty the Queen (Respondent) (July 10, 1995) were not applicable to an orthodontist installing (an exempt service) an orthodontic appliance (a zero-rated good) on the basis that a supply of an orthodontic appliance is almost certainly accompanied by a supply of an orthodontic service (installation), and Parliament must have intended for both components to receive different tax treatments, because Parliament listed them separately.

Clinic management

Cost-sharing arrangements among healthcare professionals within a clinic, such as creating a corporation to share overhead expenses, present unique challenges. For instance, by creating a corporation to hire and employ administrative staff for the shared benefit of the practitioners involved, and “reimbursing” the corporation for the expenses incurred, it is likely CRA would take the view that the corporation is providing taxable management services to the practitioners for the various functions it performs. Often this corporation is associated with the practitioner (who is a shareholder), and so the value of those services is also increased to fair market value in order to assess how much tax is payable.

Clinics operating as “Total Wellness Clinics” that offer a range of services, including those from doctors, pharmacists, physiotherapists, and naturopaths, potentially open a Pandora’s box of GST/HST issues through their cost-sharing arrangements and the provision of taxable and exempt supplies.

Closing remarks

It is important to underscore the need for tax professionals who are advising healthcare professionals to stay vigilant about the evolving GST/HST landscape. As the healthcare industry continues to expand and diversify, healthcare professionals, with the help of their tax advisors, must carefully navigate the nuances of taxable and exempt supplies to ensure compliance with GST/HST regulations and to mitigate compliance risks.