Most medical professionals, particularly those that share space with other professionals or work in a joint / common practice, may not be aware that they may have GST and HST issues to be concerned with.
While this may be true in some cases, we’ve seen our share of Canada Revenue Agency (“CRA”) audits of medical practices. This article will help you understand some of the GST / HST issues surrounding CRA audits for medical practitioners.
I’m David Crawford, the Indirect Tax Leader at Achen Henderson. I’ve worked with various medical professionals for over 20 years while working in public accounting. I have met so many medical professionals, from optometrists to dentists to general practitioners, who practice in common or share space and costs with other medical professionals under the same roof. In 2022 we saw an increase in CRA audit activity, in connection with these arrangements because the CRA now knows there can be issues and “tax loss risk” to the government’s sales tax intake.
- There is typically one main professional that either owns or leases the practice’s land and building from a third party.
- If the doctor owns the building, they typically operate the building through a separate company from their professional corporation (“PC”) where their practice is operated from.
- The PC will generally have a written or oral agreement with one of more practitioners (either directly or via their own PC’s), as well as with locums, to share/split fees as well as costs of running the practice(s) and the building operating costs.
In a bona fide cost sharing arrangement under a written agreement, one practitioner acts as a legal agent on behalf of the other practitioner in procuring and then splitting costs amongst the group. Generally, this does not result in any GST/HST issues. However, in practice, we rarely see this planning executed properly, and generally is not in-line with CRA’s published administrative position on medical cost sharing arrangements.
The gap between the actual cost sharing agreement, and the CRA’s administrative position is where we typically see GST/HST audit assessments, along with the related penalties and interest. Under these cost or fee sharing arrangements, it is generally the main practitioner that is incurring all the costs. Those costs are then shared or split with the other practitioners through a “fees sharing arrangement”. In most agreements we’ve reviewed, the cost of the GST/HST assessment inadvertently becomes a fixed cost to the main practitioner, unless there is a provision in the agreement, that such additional costs (i.e. the GST/HST assessment plus any penalties and interest) can be recovered from the other practitioners.
By properly designing a workable arrangement, implementing and executing it properly from a legal and accounting perspective, practitioners can avoid these pitfalls. Knowing that practitioners are insulated from the cost and time associated with a GST/HST audit, as well as the cost of an actual assessment, gives our clients peace of mind, and avoids costly mishaps with the CRA.
If you’re in this situation, or you are part of a consortium of practitioners that share/split fees and the costs of running the practice(s), we recommend that you invest some time in reviewing the arrangement in order to mitigate your risk and that of your fellow practitioners.
Reach out to me directly for a free initial consult to determine if you have properly addressed these risks by clicking here.Get indirect tax help today!