The topic of this video is HST and how it impacts doctors, physicians, dentists and other medical practitioners in the province of Ontario and across Canada.
What is HST? – HST for physicians, dentists and medical practitioners in Canada
HST stands for the Harmonized Sales Tax, which was implemented on July 1st, 2010. HST is levied on most goods and services at a rate of 13%. It replaced the former GST (5%) and PST (8%).
How does HST impact medical professionals?
Firstly, let’s take a look at the three categories of goods and services pursuant to the Excise Tax Act (i.e. the Act that governs HST):
- Category 1 – Exempt Goods & Services – These are goods and services that are not subject to HST (e.g. OHIP billings, uninsured diagnostic and treatment services performed by a medial practitioner)
- Category 2 – Taxable Goods & Services – These are goods and services that are subject to HST (e.g. teeth whitening, cosmetic surgery)
- Category 3 – Zero rated Goods & Services – HST is not applicable to zero-rated goods and services. However you can recover HST paid on expenses related to selling zero-rated goods and services sold.
Category 1: Exempt Goods & Services – HST for physicians, dentists and medical practitioners in Canada
Exempt goods and services include:
- Insured services billed through OHIP
- Uninsured services that are diagnostics, consultative or treatments provided by a medical practitioner
- Tooth extractions
- Dental examinations
- Regular dental cleaning
- Cavity repairs
Category 2: Taxable Goods & Services – HST for physicians, doctors, dentists and medical practitioners in Canada
Taxable goods and services include:
- Cosmetic surgery
- Research services
- Teeth whitening
- Electronic toothbrush sales
The major advantage of taxable services is that you can recover HST that you paid on purchases related to the sale of taxable services. For example, a dentist can recover HST paid on teeth whitening supplies, because teeth-whitening is a taxable service.
The disadvantage of taxable services is that you have to charge your patients 13% on top of the sale price.
Category 3: Zero Rated Goods & Services – HST for physicians, dentists and medical practitioners in Canada
Zero rated goods and services include:
- Heart monitoring devices
- Hearing aids
- Eye glasses
- Canes and crutches
- Insulin pumps
- Orthodontic appliances
- Repair parts for orthodontic appliances
HST is not charged to patients for the sale of zero rated goods and services. However, you can recover the HST paid on the related purchases.
Tax Strategies for Avoiding HST for Physicians, Dentists and Medical Practitioners
With the change to HST, there is a unique tax planning opportunity for physicians, doctors, dentists and other medical practitioners in Ontario, Canada.
By way of background, many medical professionals work in a clinic, where they pay a portion of their revenue to the clinic for administrative and support services. The clinic levies 13% HST on the administrative and support services provided, which is a significant tax cost to medical practitioners.
Wouldn’t it be great if you could avoid most of the HST charged to you by the clinic? The solution is to enter into a cost sharing arrangement, which is discussed below.
Cost Sharing Arrangement – HST for physicians, doctors, dentists and medical practitioners in Canada
In this strategy, 2 or more medical practitioners enter into a cost sharing arrangement with the clinic. The clinic may be owned by the medical practitioners, their spouses or by a third party. The cost sharing arrangement requires each medical practitioner to pay for a percentage of the costs incurred by the clinic.
Where a clinic is deemed to be an agent of the medical practitioners, expenses paid by the clinic and charged back to the medical practitioners are not subject to HST. Examples of such expenses include:
- Administrative staff
- Medical supplies
- Office and general supplies
Therefore, a large portion of the payments made by the medical practitioners to the clinic are for reimbursement of expenses which are not subject to HST.
For a clinic to qualify as an agent of the medical practitioners, four criteria must be met:
- The medical practitioners (e.g. doctors) must the exercise control over the clinic
- The medical practitioners must approve expenditures made by the clinic
- The medical practitioners must receive regular financial reports from the clinic / management company
- The clinic must be able to enter into contracts on behalf of the medical practitioners
About the Author – Allan Madan
Allan Madan is a CPA, CA and the founder of Madan Chartered Accountant Professional Corporation . Allan provides valuable tax planning, accounting and income tax preparation services in the Greater Toronto Area.
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