Many physicians and dentists (collectively, “practitioners”)  practice in groups and it is common for one or two practitioners (the “Principal”) to own the practice (i.e. the lease, equipment and administrative support) and for the other physicians to remit a portion of their billings to the Principal for use of the practice facilities.

Recently, we advised a senior doctor, the Principal in this practice, with a busy practice that includes two other senior doctors.  The two doctors use the practice facilities and staff and in-exchange remit a portion of their billings to the Principal.   This practice group is not a “partnership”.    In order to not trigger GST/HST liability on the payments from the doctors to the Principal, our advice was for the Principal to “hire” the two doctors as “associates” of the practice.  In this way, their billings would be billings of the medical practice and each associate doctor would be entitled to a certain percentage.

Due to OHIP billing requirements, the associate practitioners bill OHIP directly and then forward a portion of the fee paid by OHIP to the Principal.  This portion may be based on a percentage of the associate’s billing or another formula.  As long as the associate and the Principal have entered into a bona fide arrangement to share fees, CRA will not consider the payment by the associate to be in respect of a supply of practice facilities (i.e. offices, administrative support, equipment, etc.).   Rather, CRA accepts that the payment between the practitioners is an apportionment between the two parties and not subject to GST/HST.    When drafting associate agreements for medical or dental practice groups, it is critical that the “apportionment” nature is made clear.  If the agreement between Principal and associate doctor or dentist, as applicable, characterizes the payment as being “for use of the facilities of the practice”, CRA takes the position that GST/HST will apply to the payment made by the associate to the Principal.

As an added precaution, the associate agreement we prepared for our Principal included the following clause:

“The parties believe the GST/HST does not apply to the Associate’s supply of Services hereunder; however, in the event Canada Revenue Agency or its successor finds the supply of Services hereunder to be subject to the GST/HST or other similar tax based on supply of services, the Associate shall be liable for, and shall promptly pay, such taxes.”