Some GST and HST quirks you might need to know (part 1)
Article written by MARCIL LAVALLÉE for the Canadian Overview of Q1 2021. A newsletter published by Canadian member firms of Moore North America. These articles are part of our mission to become partner of your success by keeping you informed of the news.
Here is part one of a dozen unusual GST and HST rules from the Excise Tax Act (ETA) — some less well-known than others — that might affect your business. Note that while the GST and HST are administered by the CRA across Canada, they are administered in Quebec by Revenu Québec (RQ).
- Medical and other health clinics. When revenues are shared between a doctor (or other health care provider) and a clinic, it is often unclear whether the clinic is paying the doctor for health care services (exempt), or the doctor is paying the clinic for the use of the clinic’s facilities (taxable). This determination depends on both the contractual arrangements and the facts. (See CRA Policy P-238.) These arrangements need to be carefully reviewed by a GST expert to ensure that the right taxes are being remitted by the right parties. Otherwise there can be a nasty (and expensive) surprise when the CRA or RQ audits either business.
- Medical and other health clinics. Cosmetic surgery (e.g. facelift, teeth whitening, laser spots removal) is taxable unless it is needed for medical or reconstructive purposes. This rule actually applies to all health care services “in respect of” a cosmetic service. Thus, for example, a nursing service or dental hygienist service relating to a cosmetic treatment may be taxable, even though such services are normally exempt.
- Charges between related companies can often be free of GST by filing a special election (ETA section 156, Form RC4616) with the CRA or RQ, but only if the effect is merely to eliminate cash flow. This election cannot save tax. If one of the companies is making exempt supplies such as residential rents or health care services (so that it cannot claim full input tax credits), the companies cannot make the election. Also, if the election was made before 2015 on old Form GST25, it is now invalid and the companies are at risk of being assessed for not collecting and remitting GST/HST (A different election on Form GST27 (ETA section 150) is available to eliminate tax in certain cases, but only if one of the companies is a “financial institution” as that term is defined.)
- Not all health care services are exempt. Those that are not regulated by at least 5 provinces, or covered by public health insurance in at least 2 provinces, are not on the “exempt” list. For example, the services of massage therapists, kinesiologists and homeopaths are taxable, even if they are regulated by the province! (There is an exception for a “small supplier”, with no more than $30,000 per year of annual taxable supplies, who chooses not to register for GST/HST.)
- Services are generally taxed based on the customer’s address. Thus, in general, if a consultant in Ontario bills an Alberta client, only 5% GST applies, but if a consultant in Alberta bills an Ontario client, the Ontario 13% HST rate applies. However, there are many exceptions to this rule. One exception is for “personal” services (e.g., haircuts), which are taxed based on where they are performed … but this rule excludes a “professional” service (e.g. a lawyer or accountant), which normally follows the general rule! This rule may have surprising effects. For example, a hotel with a spa that provides massage therapy should likely be charging GST or HST based on the customer’s home province, if massage therapy is a “professional” service.
- A vendor selling real property that has GST or HST buried in the price (where the vendor wasn’t able to claim an input tax credit on purchasing the property, for any of various reasons) can often recover that GST or HST, by way of a special input tax credit or rebate. These obscure rules, in ETA sections 193 and 257, are often overlooked by lawyers and accountants advising vendors.
Read an article on the same subject here.