Category: Commodity Tax (HST)

Are All Healthcare Services GST/HST Exempt?

Posted on by Edixon

Generally, healthcare professionals are not registered for GST/HST due to the fact that the majority, if not all, of their services supplied to their patients are exempt from GST/HST.  Changes made back in 2013 caused medical practitioners to have some taxable services, and therefore, there was a need to register for GST/HST. From speaking with practitioners, there still seems to be some misunderstanding of these changes.

Under the provisions in the Excise Tax Act (ETA), services that are provided solely for non-healthcare purposes, even if supplied by healthcare professionals, are not considered to be basic healthcare and are not intended to be eligible for the exemption. For instance, the GST/HST legislation specifies that all supplies for purely cosmetic procedures are a taxable supply, and thus subject to the GST/HST.   Given a number of past court cases, the scope of the GST/HST exemption was expanded beyond the original legislative policy intent to limit the GST/HST exemption to basic health care services.

The 2013 Federal Budget provided some clarity in the fact that GST/HST will apply to reports, examinations, and other services that are not performed for the purpose of the protection, maintenance, or restoration of the health of a person or for palliative care. For example, taxable supplies for GST/HST purposes include reports, examinations, and other services performed solely for the purpose of determining liability in a court proceeding or under an insurance policy.  They may also include the preparation of back-to-work notes and the completion of disability tax credit forms.   Supplies of property and services in respect of a taxable report, examination, or other service would also be taxable.

A report, examination, or other service will continue to be exempt if it is performed for use in the protection, maintenance, or restoration of the health of a person or use in palliative care. As well, reports, examinations, or other services paid for by a provincial or territorial health insurance plan will continue to be exempt.

Overall, what this means is that it is no longer safe to assume that just because a service is provided by a healthcare professional that it will not be subject to GST/HST. If you are a medical practitioner and are providing services that are not direct to your patients, you should discuss all of your revenue streams with your local CPA to ensure you do not have a GST/HST liability.  If you need assistance, please don’t hesitate to call a DJB Professional.

GST/HST and Damage Payments

Posted on by Edixon

Given the vastness of the GST/HST rules, it is wise to check the GST/HST rules for all transactions, especially those that are non-routine, such as damage payments.  Generally, damage payments do not constitute consideration for a taxable supply under the Excise Tax Act (ETA), so GST/HST is normally not payable. However, section 182(1) of the ETA deems certain damage payments to be consideration for a taxable supply, and inclusive of GST/HST.

Generally, subsection 182(1) applies under the following conditions:

  • there must be a breach, modification, or termination of an agreement for the making of a supply subject to GST/HST, of property or a service in Canada (other than a zero-rated supply);
  • an amount must be paid or forfeited to the supplier, or a debt or other obligation of the supplier must be reduced or extinguished;
  • that amount must be paid as a result of the breach, modification, or termination, and not as consideration for a supply; and
  • exceptions referenced in subsection 182(3) cannot apply (i.e. the section 161 late payment provisions).

The application of this provision is limited, in that it does not apply to damage payments, which are made by the supplier to the recipient.  These rules would seem to apply for the liquidated damages, which can occur in large dollars in construction contracts.   There are common situations that the CRA comments on in Policy Statement P-218, where the rules under subsection 182(1) would not be met, and they include:

  • no prior agreement for the making of a supply existed between the parties;
  • the original agreement was for the making of an exempt or a zero-rated supply;
  • the amount is not paid or forfeited to the person making the original supply, or used to reduce or extinguish a debt of the supplier, e.g., where the person making the payment is the supplier of the original supply;
  • the original agreement was for the making of a supply by a person who was not a registrant;
  • the payment is consideration for the supply under the agreement; or
  • the amount is paid otherwise than as a consequence of the breach, modification or termination of the agreement for the making of a supply.

The CRA does provide a number of examples as to when these rules would and would not apply. If your payment does fall into this provision, subsection 182(1) provides that the place of supply rules that applied to the original supply also apply to the deemed consideration. Thus, if the original supply was zero-rated, the deemed supply under subsection 182(1) will also be zero-rated and no tax will be remittable by the registrant. Furthermore, if the original supply was made in the participating province, then the deemed supply will also be made in the participating province.

We often see contracts where subsection 182(1) of the ETA is not considered in advance; and as this provision deems the payment to be inclusive of GST/HST, it can result in the monies you actually receive to be reduced by 5/105 or 13/113 in Ontario.  If this oversight in the contract is noticed after the fact, as this is a deeming provision, even if the person receiving the damages payment separately is charged GST/HST, this will result in GST/HST being paid twice, as this provision deems GST/HST to have already been included in the damage payment.   Thus, resulting in GST/HST to have been paid twice; first by virtue of the deeming rule discussed above and secondly by virtue of the separate invoice that charged GST/HST in error.

If you are the party making the damage payment, this deeming provision allows you to claim an ITC for the GST/HST deemed to have been paid pursuant to section 182 of the ETA.   If you have made these payments in the prior 4 years, it would be prudent to see if the damages met the rules under 182 of the ETA to recover any GST/HST deemed to have been paid.

Overall, when drafting agreements, it would be wise to contemplate the rules in section 182 of the ETA that apply.  If they do apply, the agreement should ensure the damage payment as calculated in the agreement is grossed up by an amount equal to the GST/HST applicable to the transaction.  Therefore, when the payment is received and GST/HST is calculated into the total payment, you will not be out of pocket the GST/HST.

GST/HST and Dentists

Posted on by Edixon

Generally speaking, under Section 5 of Part II of Schedule V of the Excise Tax Act (ETA) services provided by a medical practitioner, as defined, in a health care facility, a private clinic, or a doctor’s private office are exempt from HST.  “Medical practitioner” is defined as a person who is entitled under the laws of a province to practice the profession of medicine or dentistry.  In addition, the majority of dental appliances are considered to be zero-rated under the ETA.   That being said, there are various situations when services or goods provided by a dentist may be taxable for GST/HST.

One example where a dentist may be supplying a taxable service as it relates to GST/HST is cosmetic procedures.  The CRA states in GST Memorandum 300-4-2 that surgical and dental procedures that alter or enhance a patient’s appearance but that otherwise has no medical or reconstructive purposes are considered to be cosmetic surgery. The criteria for cosmetic surgery to be medically necessary, and thus not applicable to GST/HST is also listed in the same GST memorandum and includes:

  1. the surgery is necessary to alter a significant defect in appearance caused by disease, trauma, or congenital deformity;
  2. it is recommended by a mental health facility, or
  3. the patient is less than 18 years of age and the defect is in an area of the body that normally and usually would not be clothed.

Examples of GST/HST taxable services and  products provided by a dentist, assuming they are not a small supplier, may include the following if done for cosmetic or other purposes:

  1. Teeth whitening
  2. Mouth guards
  3. Possibly inlays and outlays (see below)

Artificial teeth and orthodontic appliances are zero-rated for GST/HST purposes.  That being said, an implant, crown, cap or onlay that is fabricated to replace 50% or more of a natural tooth will qualify for zero-rating as an artificial tooth.  As a general rule, if it does not replace more than 50% of the existing tooth, it would be taxable for GST/HST purposes.

As a result of the above, dentists may have a mix of exempt and taxable revenue streams, which would result in some portion of the GST/HST paid being claimable as an Input Tax Credit (ITC), and some not.  Generally when there are mixed revenue streams, the taxpayer must allocate the ITC’s on a fair and reasonable basis amongst the taxable and exempt revenue streams.  The allocation of these expenses as it relates to an ITC claim can be complex and heavily scrutinized by the CRA.  The CRA has published GST/HST Memorandum 8.3 as a guideline to what the CRA considers to be ‘fair and reasonable’ allocation methods.   It is important that when determining your fair and reasonable allocation method, that it be documented to defend its reasonableness should it be challenged by the CRA.

Please note that the definitions and rules are more complex than outlined above.  Before you make any changes to your GST/HST, please consult your GST/HST advisor for clarification and what your next course of action should be.

How Do I Correct My GST/HST Return?

Posted on by Edixon

It isn’t uncommon that you find an error in your accounting records after you have already filed your GST/HST return.  The CRA has stated policies on its website about how to fix common problems such as forgetting to claim input tax credits (ITC) or correcting your GST/HST collected amount.

Forgotten ITCs

The CRA states that if you forgot to include an ITC, which you were entitled to, you are not to adjust your return. Instead, they require you to include any missed ITCs in your next GST/HST filing.   In most instances, you have up to four years to claim your ITCs.  Other than lost cash flow, you will eventually get to claim the credit you are eligible for.  For more on the time limits for claiming ITCs please refer to CRA’s website.

Correcting a previously filed GST/HST return

If you need to change the amount of GST/HST collected or collectible or make any other change to another line, the CRA states not to file another return. Instead, they ask that you request an adjustment for the reporting period that contains the incorrect or missing amount, indicating:

  • your 9-digit business number;
  • the GST/HST reporting period to be amended; and
  • the corrected or revised amounts for each line number on your GST/HST return

Most changes can be made either through the online service: My Business Account, if you are registered for this service, or by sending a letter to your tax centre.    You will need to send a letter to your tax centre following the guidelines above.  Find your tax centre.

If you had significant errors on your return, especially unreported amounts, you may want to consider filing any adjustments through the CRA’s Voluntary Disclosure Program, which you can find more information.

If you are having issues getting the correct information from your accounting software, or have noticed prior errors in your GST/HST filings, we would be pleased to help correct these returns, in addition to implementing an appropriate reporting system for you and your company.