Finance: Bracing for recent GST policy paper concerning medical practitioners

by Ken Lagasse, CA

Recent policy statements by CCRA concerning GST and medical practitioners and the fact that many dentists are still not enjoying regular and potentially significant GST refunds have inspired this article.

When GST was implemented in 1991, GST compliance added 2-4 % to the expenses of operating a typical dental practice. At the same time, eligibility for GST refunds for the dental profession was implemented by compromises negotiated with Revenue Canada by determined dental associations. These partial GST tax credits were created to help relieve the new burden of additional costs to dentists realized when GST was implemented.

The medical professions have recently achieved a higher profile with the GST unit of the Canada Customs and Revenue Agency (CCRA) because of the proliferation of cost sharing activities among practitioners. The result is a 17-page policy statement titled “GST/HST Payments Made Between Parties Within a Medical Organization” (P-238, November 2000) which is partially summarized in the following table.

Basically this policy paper establishes that medical practitioners must establish a proper ‘agency relationship’ through their cost or income sharing arrangements. This indicates the need to revisit your written agreements and administrative procedures. You do not want to be in a situation where CCRA can easily establish GST liability because acceptable documentation is either absent or contradicts acceptable compliance with CCRA policies. This is quite common but none the less onerous when one remembers that with CCRA you are guilty until you prove yourself innocent. The onus of proof is on the taxpayer. That is literally the tax law.

Many dentists are unaware that noncompliance (i.e. improper documentation of cost sharing agreements) may result in unwarranted exposure to unrecoverable and significant GST retro-active assessments. This issue is relevant whether or not a practitioner is registered for GST (over half of dentists are not registered) since monies paid via some non-compliant cost sharing arrangements are often over $30,000-the threshold amount for taxable supplies which creates the GST liability. The good news is that the diagnosis and treatment (changes to documentation and administrative practices) is relatively simple. This review of GST compliance will reveal to dentists, who are not registered for GST, that they are able to retrieve possibly significant refunds from GST that they have paid and will be paying.

The new policies are not actually law and there is no vendetta by CCRA to pursue dentists over this issue. However, the bottom line is that CCRA spent 18 months to create this policy statement for GST for medical practices and they have a habit of following through on their efforts.

Diagnosis, Treatment and Follow Up

There are considerable risks concerning GST liability if your practice is not administered correctly or its structure requires compliance. Please review the ‘ GST Diagnosis Table’ below to determine how GST liability and eligibility for refunds apply to your practice. Important explanations, suggestions and tips follow the table. Some points in the table are referenced to information contained after the table. For example, G refers to section G or Risks.

The good news is that the GST refunds you may not be receiving are routine once the initial calculations and plan of action are implemented.



1) Practitioners charging patients GST for No GST charged to patients except if performing over Cosmetic work is taxable supply (Def’n 3). Must register cosmetic work.$30,000 (for any annual period) cosmetic services. for GST and charge patients 7% (G)

2) Practitioners paying GST.GST must be paid to suppliers except for lab work, Cannot retrieve GST except for proportion of services wages or other exempt supplies.for tooth restoration (F). GST is payable for certain payments by Locums to Principals or Principals to management companies or clinics (See 6,8,9,10 below).

3) Practitioners retrieving partial GST paid.Locums paying a % of gross fees to principals cannot Certain procedures are required to obtain refunds of retrieve any GST. Most principals who own their GST paid. Must be registered and perform calculations practice can retrieve part of GST paid. based on CCRA policy (F).


4) Principal(s) who own their practice charge Locums Calculation must be % of gross fees, which are recovered No GST need be charged by the Principal to the Locums. a portion of Locums gross fees (principal by the Principal to lower Principal expenses. usually collects Locums patient fees).

5) Locums or Associate(s) bill and collect their fees Locums still don’t ‘own’ their patients but pay % of their No GST payable by Locums to Principal for their contrithemselves or hrough Principal and pay Principal gross fees to principal. This payment must be calculated as bution to Principal. % of their gross (Locums) fees.% of gross fees.

6) Principal(s) or Locums bill and collect their own Once the calculation of the Locum’s contribution is Principal is deemed to be providing taxable supply (over fees or share collection facility but Principal characterized as not being a % of gross fees, GST is 30K per year) to Locums and must be registered and charge charges Locums a flat fee for their share of applicable.Locums 7% GST on the fee paid by the Locum. Serious expenses or a % of expenses.potential GST liability for Principal that can be retroactive. Principal may not be able to recover the GST from Locums and if Locums pay this GST, it is not retrievable.

7) Partnerships between Principals who share Must be careful partnership structure is bona-fide and No GST implication except for cosmetic ownership of practice through bona-fide partnershipsharing of most expenses is based on % of partnership services. Partnership is generally not arrangement. Partnership receives fees and paysinterest or other element contained in partnership recommended because of liability and expenses including issues.

8) Cost sharing or association agreements among Familiar structure for sharing common expenses among GST between Principals not applicable but must have Principals. Expenses are shared by Principals Practitioners. Any Principal can be named as creditor to genuine agency relation-ship. (E,G). Principals apportion paying a portion of estimated joint expenses (does supplier (all principals do not have to be creditors). Critical their share of expenses paid for their own GST retrieval. not have to be into a special account).that agency relationship exists among Principals.

9) Management companies – owned by Principal(s) This is a clear case of practitioners paying expenses and Management company must be registered and charge to pay expenses of practices, including GST of administration fees and if the company is not acting as Principals GST on most of expenses recovered and the Principal or Associates. Administrative fee usually agent only (this is rare) GST applies. adminis tration fee. Practitioners would pay GST anyway charged to Principals by company. Principals usually but they now pay extra GST on administration fee and collecting their own gross fees or having comp-possibly GST on GST. Management company pays GST to any administer collections.CCRA and gets credit for GST paid to suppliers. Practitioners still can claim their GST tax refund if their record keeping is adequate.


10) Clinics – Private or Institutional. Practitioners who There is no agency relationship between the clinic and the The clinic must be registered and charge GST to the contract with clinics owned by one or more Principalscontractors (Practitioners). It doesn’t matter how the fee contractors because the clinic is deemed to be providing a or institutions (hospital etc.) to provide part-time paid to the clinic by the Contractor is calculated.taxable supply. If GST is not being paid, retroactive GST service. Usually pay a fee to the clinic for use liabilitie
s of the clinic and possibly the Contractors exist of facility.and the Contractors are not able to retrieve any GST paid. The patient is in real pain.

11) Other situations exist such as practice sales and GST implications are relevant on most major transactions. Research for GST compliance should be considered as GST liability on de-registration (not that onerous important as income tax. Opportunities for GST refunds also because sale is usually characterized as goodwill, should be reviewed if major acquisitions of property or which is GST exempt)equipment are made.



Once your review of the above table connects you to what applies to you, it’s time to review the facts. This review of the facts is a critical compliance technique because the Excise Tax Act (ETA-includes GST), policy papers and rulings by CCRA revolve around “the facts”.

Gather your agreements between practitioners and suppliers, your bank statements and samples of calculations of how expenses are shared among the various practitioners in your office. Review this material to determine:

if expenses are shared by calculating and sharing gross fees or if a separate calculation and payment made to each other is just for expenses (unrelated to gross fees);

the specific mention of agency relationships in your documentation. Determine under whose name the expenses are billed.

if you are required to be registered for GST and therefore liable to collect GST.

if you are entitled to GST refunds according to the table above and part F below.


Your practice is a commercial activity. This would create taxable supplies (subject to GST) if medical practices were not specifically listed as exempt. This means that no GST is charged for exempt services and GST paid is retrievable. The big ‘however’ is that some of your services are not exempt because they are specifically identified as being a taxable supply. Also, some of your services are zero – rated (not the same as exempt) by the ETA so you don’t have to charge GST to your patients but you can receive a refund for a portion of the GST paid related to those zero-rated services (F).

GST registration simply means you are complying with the ETA requirement (a question of fact) regarding the taxable services you are providing. If you do not register and do not comply, CCRA may investigate and assess you the GST (7%) you should have charged patients, contractors or Locums, whether you were registered or not, usually for the past three years, possibly with penalties, and definitely with non-deductible interest. Trying to recover these retroactive extra costs from patients or associates is a considerable undertaking.

GST registration is required to receive refunds, if applicable-in some cases retroactively. A separate group within CCRA administers GST. This group is capable and efficient and I have never had an instance where GST registration instigates an income tax audit. Registration does not relieve the liability for the period of time you should have been registered. The sooner you register the better.

If applicable, change your associate agreement to provide for GST requirements and start charging GST as required from the first day the registration for GST indicates is applicable.


The GST registration form will use your payroll number with the suffix “RT”. How you complete the rest of the form has tax implications for reporting periods (choose the quarterly option if you determine you will be getting refunds), who has the GST liability, how refunds are calculated and how CCRA places you in their system. As within your profession, advice from a specialist is recommended.


Absolute due diligence is required to be able to prove an agency relationship between practitioners sharing offices. Again, the agency relationship is a question of fact and it is mentioned enough times in CCRA material that we must assume that this is the practitioner’s Achilles Heel. To qualify for ‘compliant agency status’ (CCRA has a policies but not specific definitions) you should seek legal advice and ensure your documentation contains:

a joint bank account to share expenses that is in the name of all principals.

invoices from suppliers in the name of any Principal “and associates”.

a cost sharing agreement that specifically mentions an agency arrangement and each parties’ rights and responsibilities to each other.

Please don’t ignore this agency due diligence.


Most practices perform tooth restorations, specifically defined by CCRA as ‘artificial teeth’ (Def’n. 4). These are the crowns, bridges and dentures you provide your patients. This creates the zero-rated activity that entitles you to a refund for a portion of the GST you paid for every period you file a GST form.

For orthodontists, oral surgeons and denturists, the refund amounts will be a high proportion of the GST paid. A typical general practice has GST paid for dental supplies, office expenses, rent, travel and fees in the 30-35% range of expenses including wages. The GST refunds could be approx. $600-$1,200 per quarter, plus retroactive claims (for four years back), depending on the formula you create to apportion these GST costs to zero-rated services.

CCRA does not have a specific formula used to calculate GST refunds for dentists. They state the calculation “has to be reasonable”. Certain record keeping for GST paid is required that should support your calculation because some GST paid is 100% retrievable and some must be apportioned to zero-rated income.

Calculating GST paid is easy. Use the formula 7/107 times expenses paid or payable (that include GST) and you won’t have to add every invoice or separate GST in your expense ledgers. Once you determine GST, you have to determine the proportion of the zero-rated activities to total fees of the practitioner. A rule of thumb is using 3 times your lab costs that will give you the amount of zero-rated gross fees you perform. You may be asked by CCRA to establish details of zero-rated services but computerized records with procedure codes can summarize this activity easily. This proportion of zero-rated activities is usually the proportion of GST paid that is refunded but there are important exceptions that can be applied to increase the refund.

GST refunds reduce your expenses and increases your income for tax purposes but the cash flow increase is a worthwhile benefit.



My recent informal survey showed that over 50% of dentists are not registered for GST. This means many are not receiving their refunds but could also mean the liability for non-compliance is high.

The implications of non-compliance are:

Principals of clinics or management companies not charging GST to contractors paying expenses as illustrated in points 6, 8, 9 and 10 of table A could incur GST retroactive liability of 7% (plus interest) of expenses that they were charged to associates. Tens of thousands of dollars could be assessed for larger practices.

Principals not charging patients GST for cosmetic work (point 1 in table A) could be liable for the GST they should have charged.

for practitioners that do not own their practices, if the Principal is not charging GST and they should be, any GST liability risk of the Principal could be a risk to you either in your liability to the Principal for retroactive GST or the profits of your practice if you have to start paying unplanned non-refundable GST.

Once you are registered, de-registration has implications and modest costs cost as well.

There are no official guides for GST compliance or refunds for the medical profession, like there are for others. The tax law puts the onus on the taxpayer to prove compliance (guilty until you prove yourself innocent) and questions of fact must be documented. However, tax and GST remains a self assessing system, so you are entitled to re-arrange your affairs to achieve compliance or keep your affairs as they are a
nd comply by registering and charging or paying GST as applicable.


A. Ensure your legal agreements specify GST liabilities (current and retroactive), agency relationships (if applicable), and who is responsible for GST related record keeping;

B. Accountants not usually oriented to GST specific matters are more than capable of performing the required research to achieve GST compliance. However, to maximize benefits within customary compliance protocols, major decisions such as the best refund formula for your situation should receive the attention of a GST specialist.

C. Any major change in the status quo among practitioners, the acquisition of material assets, the sale of practices or retirement should provide a GST compliance review.

D. When preparing formulas for refunds, maintain documentation and explanations for assumptions.

E. The CDA is a leading source of helpful material. Their manual (GST and Dentistry) provides more details about zero-rated and exempt activities.

Give yourself the benefit of the doubt if you are simply afraid CCRA may not agree. CCRA depends on you to provide then with your reasonable judgement because you know the facts the best, just as you know your patients the best. Prepare to help them help you.


These are my interpretations of specific definitions in the ETA. Please refer to the actual text of the law.

1) Cosmetic supply-application is intended to beautify, preserve or restore the human body. These are usually elective procedures with a non-medical reason. If medical reasons are documented, the supply could be exempt from GST.

2) Zero-rated supply–a supply specifically listed in section 6 of the ETA. This creates eligibility for GST tax credits.

3) Taxable supply is a supply that is made in the course of a commercial activity but does not include an exempt supply.

4) Artificial teeth are teeth that are fabricated for use as substitutes for natural teeth. They must be anatomical and usually made of porcelain or resin. This term includes complete or partial crowns, bridges, onlays, dentures, caps and implants that must replace 50% of the tooth. Specialists such as oral surgeons and orthodontists are additionally mentioned as creating mostly zero-rated supplies. Professional judgment and proper documentation prevails. There could be instances when the 50% criterion applies to single or multiple procedures or teeth depending on timing and extent of the planned final outcome. DPM

Ken Lagasse, CA, owns a Chartered Accountant practice (1976) based in Ottawa and Vancouver that offers, often on a contingency basis, financial and tax compliance strategies, tax retrieval and tax planning for small businesses and professionals.