Article written by MARCIL LAVALLÉE in Canadian News Quarterly, a newsletter published by the Canadian member firms of Moore North America. These articles are part of our mission to become the partner of choice for your success by keeping you up to date.
Here’s part one of a dozen unusual GST and HST rules from the Excise Tax Act (ETA) – some less well known than others – that may affect your business. GST and HST are administered by CRA across Canada, except in Quebec where they are administered by Revenu Québec (RQ).
1. Medical and other health care clinics. When income is shared between a physician (or other health care provider) and a clinic, it is often unclear whether the clinic is paying the physician for health care services (exempt) or whether the physician is paying the clinic for the rental of clinic facilities (taxable). It all depends on both contractual agreements and facts. (See CRA policy P-238). These agreements must be carefully reviewed by a GST expert to ensure that taxes are properly calculated and remitted by the right parties. If they aren’t, you can expect an unpleasant (and costly) surprise when the CRA or RQ audits your company’s accounts!
2. Cosmetic health care. Cosmetic surgery (e.g. facelift, teeth whitening, laser spot removal) is taxable unless required for medical or reconstructive purposes. This rule applies de facto to all health care services that can be assimilated to cosmetic care. Thus, nursing or dental hygiene services related to cosmetic treatment may be taxable, even though they are normally exempt.
3. Fees between related companies can often be GST-free if the taxpayer files a special election (section 156 of the ETA, form RC4616) with CRA or RQ, but only if the intended effect is simply to eliminate cash flow. This choice cannot be translated into tax savings. If one of the companies makes exempt supplies such as residential rentals or health care services (so that it cannot claim input tax credits), the companies cannot make this election. In addition, if the election was made prior to 2015 using the old GST25 form, it is now obsolete and companies risk receiving a notice of assessment for failing to collect and remit GST/HST.
(A taxpayer may make a different election on Form GST27 (GST27) (section 150 of the ETA) to eliminate tax in certain cases, but only if one of the corporations is a “financial institution” as defined).
4. Not all healthcare services are exempt. Those not regulated by at least five provinces, or covered by at least two provincial health insurance plans, are not included in the list of exemptions. For example, the services of massage therapists, kinesiologists and homeopaths are taxable, even if they are provincially regulated! (An exception is made for a “small supplier” making less than $30,000 per year in taxable supplies, who chooses not to register for GST/HST).
5. Services are usually taxed on the basis of the customer’s address. Therefore, in general, if an Ontario advisor bills an Alberta client, only the 5% GST applies, but if an Alberta advisor bills an Ontario client, the 13% Ontario HST rate applies. However, there are many exceptions to this rule. One concerns “personal” services (e.g., haircuts), which are taxed according to where they are provided … but this rule excludes “professional” services (lawyer, accountant, etc.), which are normally subject to the general rule! This treatment can have surprising effects. For example, a hotel offering massage therapy services would likely charge GST/HST based on the customer’s province of residence, if the massage therapy is a “professional” service.
6. The seller of real property for which GST/HST is included in the price (and who, for whatever reason, was unable to claim an input tax credit when purchasing the property) can often recover the GST/HST through a special input tax credit or rebate. Lawyers and accountants who advise sellers often fail to take account of these obscure rules, set out in sections 193 and 257 of the LTA.
See an article on the same subject here.
