GST/HST When a Clinic Collects and Splits Contractor Fees

Who charges and remits GST/HST when a clinic collects the client's payment?

Normally the supplier does, unless a valid agent election makes the clinic account for the tax: the person who makes the sale (a "supply" in the Act) to the client charges the GST/HST and answers to the tax authority for it (the CRA, or Revenu Québec in Quebec). Collecting the client's money does not by itself make a clinic the supplier; what matters is who makes the sale under the contract and the facts. In the CRA's example of a clinic that subcontracts a psychotherapist, the clinic is the supplier to its clients (Memorandum 25-3, example 24). Every person who makes a taxable supply collects the tax on it (Excise Tax Act, s. 221), and anyone who collects an amount as tax holds it in trust for the Crown until it is remitted (s. 222).

The same test applies to 70/30 and other revenue splits, room or chair rental, associates and locums, and booking software that takes the client's payment first.

Three setups come up. The contracts and the facts decide which one you have. A small supplier is a person whose taxable sales stay at or under $30,000 (tests below); while not registered, a small supplier charges no GST/HST.

For services, the Act's agent rules do not say who the supplier is in a clinic and contractor split, and no CRA page deals with it head-on. The CRA's examples point both ways. Memorandum 25-3 (example 24) treats a clinic that engages a psychotherapist as the supplier to its clients. The older policy P-238 (sample ruling 7) treats associates as the suppliers when a clinic collects their fees and keeps a share. Each turns on the written agreement and the facts. What separates the two examples:

• In whose name the client is billed or the health plan claim is made.
• Who receives the fees from the client or the plan, and whether the contractor's payout is a share of that fee or a payment for work done for the clinic.
• How the agreement describes what the clinic keeps: a share of the client's fee, or a charge for premises, equipment and administration.

A case is not simple when contractors are near the limit, the clinic charged no tax or kept what it collected, the CRA has written about collected fees, the contract and the flow of money disagree, or the clinic sells both exempt and taxable services. Gather the contracts, the fee schedule and client booking terms, payout statements, both sides' GST/HST numbers, and each contractor's fees by calendar quarter.

Is the contractor's service exempt or taxable?

A service is exempt when it is on the Part II list of Schedule V and is rendered to an individual by a practitioner the list names, such as a physician, physiotherapist, chiropractor, psychologist or psychotherapist. When the service is exempt, nobody charges tax on the client's payment, whoever collects it (Schedule V, Part II).

The service must also be a qualifying health care supply and not a cosmetic service (cosmetic work without a medical or reconstructive purpose); neither test applies to a supply a provincial health plan pays for, to the extent it pays. A listed practitioner must be licensed or certified where required, or, where the province requires no licence, have qualifications equivalent to those needed in another province. Services not on the list are generally taxable. Massage therapy is not named, so it is generally taxable unless it forms part of a listed practitioner's own service, and osteopathic services have come off the list. The list, bundled services, and whether an all-exempt practitioner can register or claim credits are in GST/HST for medical and health clinics.

Does a contractor under the small-supplier limit have to charge GST/HST?

No, not while the contractor is a small supplier who is not registered. A small supplier is not required to register (s. 240(1)), and no tax is calculated on that person's sales (s. 166).

A person is a small supplier when worldwide taxable sales, with associates' sales, are $30,000 or less in any single calendar quarter and in the last four consecutive quarters (CRA; s. 148). Count taxable sales from every clinic and every direct client, not only this clinic. Exempt health services do not count.

A contractor who passes the limit must apply to register within 29 days of the effective date. The start date differs for the single-quarter and four-quarter tests: see When to register for GST/HST.

A small supplier engaged in commercial activity may also register voluntarily (s. 240(3)). Once registered, it must charge GST/HST on its taxable sales even while under the limit, because the relief applies only to a small supplier who is not a registrant (s. 166). It can ask to cancel only after being registered for at least a year, effective after the last day of a fiscal year (s. 242(2)). A contractor who is not registered gets no credit for tax the clinic charges on its fee, because credits go to registrants (s. 169(1)).

Which amount counts toward the contractor's limit: the client's fee or the contractor's share?

The amount that counts is what is due to the contractor for the contractor's own taxable sales, counted when it is due or paid (s. 148(1); Memorandum 2-2). So the answer follows who the supplier is.

No CRA page addresses a clinic's share. This reading follows the wording of s. 148(1), so confirm it against each contract. The clinic runs the same test on its own taxable sales: the full price if it is the supplier, its share if it only collects.

If the clinic only bills and collects, does it charge tax on the whole payment?

Generally no, if the contractor is the one making the sale: a clinic that only bills and collects for a contractor is not the supplier of the contractor's service. If the clinic is the supplier, it charges tax on the full price. The CRA calls a registrant that acts as agent only in charging and collecting a billing agent. The general rule is that the registrant principal (the person the agent sells for) collects and accounts for the tax on a taxable sale an agent makes for it, and the agent, if registered, charges tax on its own commission and services (RC4022; Form GST506).

The rule that makes a registered agent charge tax when the principal need not is written for goods (s. 177(1)), not services. If the clinic is only the contractor's agent for a service, then on the Act's wording a registered clinic has no tax to charge on that service for a small-supplier contractor; it charges tax on its own fee.

If a clinic charged tax on a sale that was the contractor's, the amount it collected as tax is held in trust for the Crown and is not clinic income (s. 222). See Registered but did not charge GST/HST for fixing past periods.

Can the clinic and a contractor agree that the clinic collects and remits the tax?

Yes, on Form GST506, a joint election for the agent or billing agent to account for the tax on supplies it makes or bills for the principal (s. 177(1.1) and (1.11); CRA). The conditions are:

1. The clinic is a GST/HST registrant.
2. The contractor is required to collect tax on the supply. An unregistered small supplier has no tax to hand over, so would need to register first.
3. Both sign. The form covers one day, a set period or ongoing supplies.
4. Neither sends it to the CRA. Each keeps a copy while it is in effect and for 6 years after the end of the year it relates to.

The election changes who reports and remits the tax; the contractor remains the supplier. The clinic still charges tax on its own fee, and each party can be held liable for all of the tax obligations that arise from those supplies. Credit notes and bad debts on those sales become the clinic's; the amount counts toward the clinic's threshold for its reporting period, not the contractor's; and a clinic on the Quick Method does not apply the Quick Method rates to these supplies. They can revoke it together by form, with an effective date (Form GST506; s. 177(1.12)).

What does the contractor charge the clinic when the clinic is the supplier?

The contractor bills the clinic for the services they supply to the clinic. Whether that supply is exempt or taxable depends on the service and the written agreement. For psychotherapy, the CRA says the terms of the agreement decide the nature and tax status of the contractor-to-clinic supply, and the exemption may apply (Memorandum 25-3, example 24).

A contractor who is an unregistered small supplier charges no tax on the invoice. A registered contractor adds GST/HST when the supply is taxable and shows their GST/HST number. The clinic can claim a credit for that tax only to the extent it uses the service in taxable sales, and only with an invoice that meets the CRA's requirements (CRA: input tax credits; Filing GST/HST and input tax credits). A clinic whose own sales are exempt gets no credit, so the tax is a cost.

If the clinic keeps part of the fee, whether that is a split of the client's fee or a separate charge for premises, equipment and administration depends on the agreement and the facts. Memorandum 25-3 says the amount may be a taxable supply by the clinic to the contractor (example 24). The older P-238 treats a genuine fee split between practitioners as an apportionment that is not itself taxed, and a charge for use of the clinic's facilities as taxable if the clinic is registered or required to be (P-238). It dates from 2000, and the CRA says it may not reflect later law changes. Each supply is normally invoiced on its own.

The clinic collected the tax and paid the contractor a net share: who holds it and who files?

It depends on the setup. In every setup, tax collected from a client is held in trust for the Crown, not kept as clinic revenue.

A payout that nets the tax out of the contractor's share, with no one remitting it, leaves the tax unreported on both sides. Tax collected and not remitted stays owing and held in trust (s. 222); interest and penalties can follow. If an incorporated clinic fails to remit net tax, its directors when payment was due may also owe the tax, interest and penalties (s. 323), subject to collection conditions and a due-diligence defence; the CRA must assess a director within two years after the person last ceased to be a director. See GST/HST reviews and audits and Penalties, interest and relief.

What invoices, statements and records should each side keep?

Both sides keep the signed contract and every change, any Form GST506, the invoices between them, and what actually happened under the contract. Records are usually kept for 6 years from the end of the year they relate to (CRA). The rest differs by side:

An invoice issued by a registrant acting as agent can support a buyer's credit if it names the intermediary and its GST/HST number (CRA).

Example

Illustrative amounts in Canadian dollars, with GST at 5%; in an HST province the steps are the same at the combined rate.

The contract decides which total counts

A studio books and collects C$100 per session for a massage therapist, a taxable service, and keeps 30%. The therapist has no other taxable sales and gives 320 sessions over four quarters.

• If the contract makes the therapist the supplier, the therapist's taxable sales are C$32,000 of client fees. That is over the limit even though payouts are C$22,400, so the therapist would need to register on the timetable in the registration guide. In the 320-session case the studio keeps C$9,600. At 200 sessions (C$20,000 of fees, C$6,000 kept) an unregistered therapist with no other taxable sales or associates would stay under the limit and charge no GST. If what the studio keeps pays for premises and booking services, it is taxable when the studio is registered or required to be. The studio adds it to its fees from every other contractor and any services it sells itself, and runs the same test.
• If the contract makes the studio the supplier, the therapist sells C$22,400 to the studio and stays a small supplier. A registered studio charges clients tax on the full C$100.

The clinic is the supplier

A clinic sells a taxable session for C$100 plus C$5 GST, so the client pays C$105, and pays the contractor C$70. The clinic reports C$5 collected. If the contractor is a small supplier, the C$70 carries no tax, the clinic has no credit and it remits C$5. If the contractor is registered and charges C$3.50 on the C$70, the clinic claims C$3.50 as a credit on a proper invoice and remits C$1.50. The contractor's C$70, not C$100, counts toward their limit.

A registered contractor and an election

A registered contractor's sessions are C$100 plus C$5 GST. The contractor and the studio sign Form GST506 for ongoing supplies. From the effective date the studio reports and remits the C$5 on its own return and still charges tax on its own fee. Each keeps a copy of the form, and both are liable for the tax on those sessions.

Different for you?

• Your clinic or studio has paid out contractors without charging GST/HST or kept the tax clients paid, a contractor is near the limit, or a CRA letter asks about collected fees: who was the supplier in each period depends on the contracts and what actually happened, which affects who should have been registered and how past periods are corrected. Rebuild each period from the contracts, payout statements and bank records with bookkeeping support.
• A contractor went over the limit or never registered: see When to register for GST/HST.
• You are registered but never charged tax: see Registered but did not charge GST/HST.
• The clinic and the contractor are owned by the same person or related companies: associates' sales are added together for the limit, and fees between them may allow an election. See GST/HST election between related companies.
• Returns are missing or the CRA estimated an amount: see Unfiled GST/HST returns and estimated assessments.
• The CRA is reviewing your collected tax: see GST/HST reviews and audits.
• Your clinic sells both exempt and taxable services: see GST/HST for medical and health clinics.
• The worker may be an employee, not a contractor: wages are not a business supply, because the Act's definition of business excludes employment (s. 123(1)). See Contractor or employee in Canada.
• A booking platform already collected the tax: see When a marketplace collects GST/HST.
• You are in Ontario or an Atlantic province: HST at the combined rate replaces GST there (13% in Ontario) (CRA). See Charging GST/HST, PST and QST by province.
• You are in Quebec, British Columbia, Saskatchewan or Manitoba: GST is 5% there, and PST or QST is a separate tax (CRA). In Quebec, Revenu Québec generally administers the GST/HST, so a business located there files its returns with it (RC4022). See Provincial sales tax.