Many doctors firmly believe one thing when it comes to tax: “Medical services are GST/HST exempt, so GST and HST aren’t my problem.”

Unfortunately, as discussed in this podcast episode with GST/HST and indirect tax specialist David Crawford, that belief is only partially true — and it’s where many clinics unknowingly get into serious trouble with the Canada Revenue Agency (“CRA”).

If you operate any type of medical or paramedical practice, share space with associates, or take a percentage of another practitioner’s billings, GST/HST may already be an issue for you — whether you realize it or not.

Let’s break down where the confusion starts, where GST/HST risks arise, and what doctors can do to protect themselves from a CRA GST/HST enquiry or audit.

Why Do Medical Professionals Think They Don’t Have to worry about GST/HST?

The misunderstanding around GST/HST in the medical and paramedical (physios, massage therapy, acupuncture, multi-discipline clinics, etc.) professions goes all the way back to the introduction of the tax itself.

Most doctors are told early in their careers that:

  • Medical services are GST/HST exempt,
  • They don’t need to register for GST/HST,
  • They don’t charge GST/HST to patients, and
  • They can’t claim GST/HST back on expenses and operating or capital costs.

And for pure medical services, this is largely correct.

The problem is that GST/HST exemptions apply to medical services — not the operation of medical businesses and many other ancillary revenue sources.

As soon as a practice starts offering nonmedical services (i.e., cosmetic procedures, etc.), selling taxable products (electric toothbrushes, or charging other professionals for access to space and infrastructure, overheads, etc. the GST/HST landscape changes completely.

What’s the Difference Between GST/HST Exempt, Zero Rated, and Taxable Supplies in Medical Clinics?

One of the most important takeaways from the podcast is that medical and para-medical clinics often deal with these three different GST/HST categories at the same time:

1. GST/HST Exempt Supplies

These include most non-cosmetic medical services provided directly to patients.

  • No GST/HST is charged
  • No GST /HST registration required (for this income alone)
  • No GST /HST can be claimed back on operating and capital expenses

2. Zero-Rated Supplies

Zero-rated supplies involve GST/HST registration, even though GST/HST is charged at 0%.

Examples discussed include:

  • Prescription eyewear and contact lenses
  • Orthodontics and false teeth
  • Certain prescribed medical devices

The key difference?

With zero-rated supplies, clinics can register and claim back GST/HST refunds on related expenses, which can lead to missed tax recovery opportunities if handled incorrectly.

3. Fully Taxable Supplies

These are typically ancillary revenue sources and are subject to at least 5% GST and in the HST provinces, up to 15%.

These include:

  • Non-prescription medical products and devices
  • Retail items sold in clinics such as electric toothbrushes, cosmetic procedures
  • Administrative, management, or space rental services

This is where many practitioners unknowingly cross into GST/HST liability risk territory. In particular, most practitioners rely on the “small supplier” threshold of $30,000 in annual taxable sales; however, this threshold also includes the zero-rated supplies and also the taxable and zero-rated sales of any associated person, such as an individual practitioner, a corporation, partnership or trust.

As such, it is often the case, that the first sale of an electric toothbrush at a dental clinic, requires the clinic (since it is likely making zero-rated supplies already) to register and charge GST/HST on it, and begin to regularly report and remit GST/HST to CRA. In our practice, we see this GST/HST trap/pitfall, catch many businesses off-guard, so early and proactive GST/HST registration is warranted in the medical and para-medical practitioner area too.

When Do Medical and Para-medical Practitioners and Clinics Run Into GST/HST Trouble?

The biggest GST/HST risk that we see is when clinics operate using fee splitting or shared practice models with at least one other practitioner.

This typically happens when:

  • One practitioner or company owns (or leases) and controls the clinic space,
  • Other practitioners (associates or subcontractors) work from that clinic, and
  • The clinic retains a percentage of each associate’s billings (for example, a 70/30 or 60/40 split).

From a GST/HST perspective, the Canada Revenue Agency views this retained percentage not as medical services income that is GST/HST-exempt, but rather as payment for either:

  • Rent or space rental,
  • Administrative support,
  • Reception services,
  • Utilities,
  • Advertising,
  • Practice management or some combination of all the above.

In other words, the clinic is supplying taxable management or rental services, not medical care, even though the practitioners may be doing so with their patients.

That retained percentage is often subject to GST/HST — even though the underlying patient service is medical in nature and thus exempt from GST/HST.

Why Is Fee Splitting Such a GST/HST Minefield for Medical and Para-medical Practices?

Here’s where things get especially painful:

  • The clinic may owe GST/HST on the portion it keeps, which tends to be a big amount where there are multiple practitioners.
  • The associate doctor usually can’t claim a lot of the GST/HST back on operating and capital costs, because their medical services are GST /HST-exempt
  • If the clinic hasn’t been charging GST/HST, it may still be assessed for back taxes, penalties, and interest, including any other smaller revenue streams that are subject to GST/HST.

This creates a situation where the clinic (typically the lead practitioner or their company) has to absorb the GST/HST cost — and it’s often unexpected and expensive.

It’s also why this issue is so widely misunderstood. Many doctors rely on informal advice from colleagues or professional circles, rather than formal GST/HST guidance, leading to what the podcast aptly calls “cocktail party tax advice.”

Are Multidisciplinary and Para-Medical Health Clinics at Risk of GST/HST Compliance Issues Too?

Yes — and sometimes even more so, as alluded to earlier

Clinics that house multiple professionals such as:

  • Acupuncturists,
  • Physiotherapists,
  • Massage therapists,
  • Chiropractors, and
  • Optometrists,

often centralize billing and administration under one entity. If that entity retains a portion of the practitioners’ billings to cover overhead and space, it is almost certainly making taxable supplies for GST/HST purposes.

The more complex the clinic structure, the higher the GST/HST risk.

Is There Any Way to Reduce GST/HST risks for Practitioners?

Thankfully, yes in some situations — but it requires proactive planning.

The podcast outlines two key approaches:

1. Properly Structured Fee Sharing Agreements

Certain bona fide fee sharing arrangements, particularly short term or locum situations, may be respected as non-taxable by the CRA, if structured correctly.

The wording and intent of these agreements matter greatly.

2. Strategic GST/HST Registration and Recovery

If a clinic must register for GST/HST, it may be able to:

  • Claim GST/HST back on a portion of operating costs,
  • Recover GST/HST on some capital expenses such as leaseholds, renovations, and certain equipment.

While this doesn’t eliminate the GST/HST burden entirely, it can significantly reduce the financial impact when handled properly. It can also proactively reduce the overall GST/HST financial impact of an audit, should CRA come knocking.

What Should Practitioners Do If They Operate in a Shared Practice Environment?

If you:

  • Share clinic space,
  • Retain a percentage of associate billings,
  • Run a multidisciplinary clinic, or
  • Have associates who are not employees…

…it’s time to take a closer look at your GST/HST position.

GST/HST issues in medical and paramedical practices rarely come from intentional non-compliance. They come from assumptions, outdated beliefs, and business models that evolve faster than tax structures, tax policy, and legislation.

Addressing these risks early can prevent unpleasant surprises — and in some cases, even uncover missed GST/HST recovery opportunities.