How GST/HST Applies to Management Fees Charged by a Medical Clinic Corporation in Canada

Many Canadian clinics are run through a corporation that owns the equipment, leases the premises, employs the administrative staff and charges physicians or other practitioners a management fee. Health care is largely exempt from GST/HST, so owners often assume the management fee is exempt too. That assumption can lead to under-collected tax, missed input tax credits (ITCs) and costly reassessments. This article explains how GST/HST generally applies to these fees, where provincial rules come in, and what to do in practice.

Disclaimer: This article is general information only. It is not tax, legal or accounting advice. Confirm current requirements with the Canada Revenue Agency (CRA), Revenu Québec where relevant, or a qualified Canadian tax professional before acting.

GST/HST Basics for Clinic Owners

The Goods and Services Tax (GST) is a federal value-added tax under the Excise Tax Act, administered by the CRA. It applies at 5% in most of Canada. In participating provinces, the Harmonized Sales Tax (HST) combines the federal and provincial portions into a single rate. The rate depends on the place of supply, not where the clinic corporation is headquartered. Verify current rates with the CRA before invoicing.

Supplies of goods and services fall into three categories:

• Taxable supplies (5% GST or HST): the supplier charges tax and can claim ITCs on related business costs.
• Zero-rated supplies: taxable at 0%, such as basic groceries and prescription drugs. The supplier can still claim ITCs.
• Exempt supplies: no tax is charged, but the supplier generally cannot claim ITCs on the costs of making those supplies.

Many health care services supplied by physicians and other listed practitioners are exempt, but only if they meet the conditions in the Excise Tax Act. Exemption depends on the type of service and the practitioner, not on the fact that the service happens in a clinic.

Step 1: Define the Management Fee

A management fee is what the clinic corporation charges practitioners for the infrastructure and support they use to run their practices. Common components include:

• Use of office space and examination rooms
• Reception, scheduling, billing and bookkeeping staff
• Medical and office supplies
• Equipment, software and electronic medical record (EMR) systems
• Marketing, administration and general overhead

These are administrative and business-support services. They are not health care services provided to patients. That distinction drives the GST/HST result.

Step 2: Determine the GST/HST Status

As a general rule, management and administrative services supplied to practitioners are taxable, even when the practitioner’s own patient services are exempt. The exemption for health care services covers the care provided to patients. It does not usually extend to a separate entity supplying space, staff or administration to the practitioner.

Several points follow from this:

• A management company that supplies taxable services must register once it exceeds the small supplier threshold (see Metric 3 below).
• The practitioner who pays the fee is typically making exempt supplies, so the GST/HST on the fee is usually not recoverable. It becomes a real cost.
• Whether each charge is a taxable service, a cost reimbursement or part of an exempt supply depends on the actual arrangement. CRA looks at substance as well as labels, so review the facts and the written agreement.

If the clinic corporation also bills patients or third parties directly for exempt health care services, it makes both taxable and exempt supplies. In that case ITCs need to be apportioned. This is where professional advice is most valuable.

Step 3: Evaluate Whether the Fee Is a Taxable Supply

Work through these questions for each fee stream:

1. What is being supplied? Administrative support, space and equipment are generally taxable. A true health care service supplied by a qualifying practitioner is generally exempt.
2. Who is the supplier and who is the recipient? Check the contracts to confirm which entity provides

   Disclaimer: The content on this website is AI-generated for informational and educational purposes only. It does not constitute certified financial, tax, or legal advice. Because accounting standards and local tax codes vary frequently, readers should consult a qualified accountant or certified professional before making any financial decisions based on this material.