GST/HST Implications on Associate Agreements
Associates are a key part of the healthcare industry as a large majority of practitioners either are one or have hired one throughout their careers. It can be a way for someone to gain experience as they start their career or a viable way to mitigate some of the hard costs that go along with running a practice. As part of this process, practitioners and their associates arrange some form of fee-sharing arrangement with each other to account for the fact that the associate typically must directly bill and collect their OHIP revenues, but also has use of the main practitioner’s office space in order to generate those revenues. While this arrangement may be somewhat formal in the eyes of the practitioner and associate, it is commonly a verbal agreement and therefore can create some complications, especially when it comes to GST/HST (“HST”) rules.
The applicability of HST on associate fees has been a bit of a hot topic with the Canada Revenue Agency (CRA) in recent years. They have been looking more closely at these associate arrangements and have reassessed and charged HST to a number of health care providers (particularly optometrists).
The starting assumption made by most involved in these fee-sharing arrangements is frequently that since the healthcare services provided to the patients by the associate are HST exempt, the revenues from these services that are transferred in either direction under the associate agreement would also be considered HST exempt.
However, it needs to be considered what the associate is actually paying the main practitioner for and what kind of support exists for that. The CRA has taken the position in a number of instances that these associate fee payments are effectively rent/admin type fees that the main practitioner is charging the associate for use of the clinic space and therefore there is to be HST charged on this amount, as that is a taxable supply. The CRA has said that only if there is a bona fide arrangement between the two parties that shows this is simply a fee-sharing arrangement, then HST can be avoided.
As we have found, many health care professionals do not have adequate associate agreements in place to support the “fee sharing” position and avoid potential HST reassessments by the CRA. In this situation, the more conservative approach is to charge the HST and then have the payor register for HST to at least recover a portion of this cost.
To avoid these difficulties, health care practitioners should consider looking at the associate agreements that they have in place to determine if changes should be made. Qualities of a valid bona fide arrangement are that it:
- Is a written document signed by both parties involved and is not just verbal;
- Clearly states that the arrangement is an apportionment of the fee for the health care service provided to the individual patient;
- Should not refer to any of the fee sharing amounts as payment for use of facilities by the associate;
Lastly, many associate agreements have slightly different terms, depending on the situation. This could include the agreed-upon percentage of fees to share, further revenues to be shared in addition to the healthcare billings, which party is making the payments, and how frequently the payments are being made. Most of these differences will not have an effect on the HST obligations, but care should be taken to examine all revenue sources included in the agreement as certain types may in fact require HST to be charged. For example, an optometrist associate may receive a percentage of the net revenues generated from their sale of eyeglass frames to patients, which is a HST taxable supply. Therefore that portion of the associate agreement will require HST to be charged and remit if the principal party is a HST registrant.
Consider involving your lawyer and one of our Professional Specialists in this process to obtain a template agreement and ensure that your agreement will meet the CRA requirements.