The Great GST Debate

A recent court decision “clarified” by the Canada Revenue Agency (CRA), has brought about some changes as to when independent medical evaluators (IMEs) are subject to GST and/or HST. I use “clarified” in the same sense as a former chief justice of England, who once said a legal matter he had been working on had been illuminated “like a blind man, in a dark room, looking for a black hat, which isn’t there.”

Having graciously reduced the GST by 1%, it appears that our government has, de facto, clawed that back in the form of costs associated with confusion, misunderstanding and, in some cases, panic or euphoria.

After reviewing an initial press release on the matter by the Insurance Bureau of Canada (IBC), one would have assumed that all IMEs are now GST- free. But after various groups of IME providers suggested otherwise, the IBC produced a second press release. This one said that although not all IME providers would be free of having to charge GST, the majority would. This latest proposition was debatable, given that the majority of IME providers are indeed “GST-able,” but it was close enough to the facts to be rationalized by the industry.

Several IME providers, including National IME Centres Inc. (NIC), spoke with the GST division of the Canadian Revenue Agency (CRA). The CRA has followed up on our written request for a ruling.

This ruling effectively discriminates against facilities that do not bring specialists or other recognized health care professionals (RHCPs) into their IME facilities. Despite the fact that doctors or RHCPs no longer appear to have to charge or remit GST for their review or examination services, the onus is on the facilty arranging such reviews or examination services to charge our clients and subsequently remit GST on the sum total of the report produced and any administration fee charged.

WHAT IS A “REVIEW”?

What constitutes an RHCP “review”? Is it a cursory glance? Is it a detailed, in-depth analysis – with or without commentary? Is it a review in the Toronto Star? Such inquiries were not definitively answered in the ruling we obtained.

We also inquired about “out-of-town-clinics,” in which an IME provider transports a specialist or other RHCP to another city or province. In such cases, it is usual to pay a local facility (which the IME provider may not have) for the space and chaperone services involved. Inevitably, this rental charge to the provider is subject to the GST.

In such instances, IME providers have argued, the rented space “belonged” to the renting IME provider; as such, it did in fact constitute an IME being conducted on the IME provider’s “premises” and therefore GST-exempt. A similar analogy would be this: the French embassy in Ottawa is located on Canadian soil, yet it is still regarded in law as French territory.

CRA then asked us if we conducted IMEs in embassies (they really did). Although we assured them this was not so, it did give rise to the following question: if we did rent out space in some diplomatic minister’s official residence, would that be subject to GST, given that the IME was performed on foreign soil? We did not actively pose this question. It does lead one to wonder though: Would any income thus earned and reported to that country (tax-free or not) have to be declared in Canada?

This problem is, I suggest, better left in the capable hands of accountants or, better yet, tax exiles and frequent fliers. Nonetheless, the CRA ruling has resolved this conundrum, stating that specialists or RHCPs do not have to charge GST for their work produced in “out-of-town” clinics, while the IME clinic (in which no RHCP “reviews” the report) must continue to charge and remit GST. This decision means CRA collects GST twice – once for the IME payment that is based on the use of premises other than its own, and once again from the work product.

Many IME facilities will no doubt rush to advertise their GST exemption as something of a marketing advantage for the end user. But let’s examine if that is in fact the case.

What is the advantage, if any, of using an IME facility that is obliged to charge GST? [Bear in mind also that any GST the end user pays will be entered in that end-user’s GST return as an input tax credit; as such, it may be fully recoverable.] The real advantage lies not only in the perception of real independence of findings, but also in the actual reality of independence of findings, and the methodology by which those findings came about. I am not suggesting other facilities are not truly independent. Rather, I am suggesting that, by our model, we have moved to maximize that independence.

By way of explanation, I shall use our own company’s business model and provide the rationale behind it. A long time ago, NIC made the conscious decision that we would not have IMEs performed on our own premises, we would not produce reports on our own letterhead, nor would we have a general practitioner or any other RHCP “second-guessing” the expertise of a neurosurgeon, orthopaedist, psychiatrist or any other specialist.

This decision is of course purely our own choice. It is based solely upon our own concerns, in addition to the input we have received from the many law firms with whom we work. We feel we must, as a sector of the insurance industry, do all we can to produce truly independent reports.

REMITTING GST

Some insurers, we understand, are resisting to pay GST on IME reports. That is their choice; certainly NIC will still remit GST, at our cost, whether we receive it or not.

We recognize that if an insurer chooses not to use our services because we charge GST, that is their prerogative. As noted above, even if they don’t pay us GST, we will still remit it, so there is no reason to disavow our services on those grounds. I can only reiterate that on all medical legal matters thus far, the legal consensus regarding our approach has been overwhelmingly in our favour.

The current situation can be likened to one in which a general practitioner reviews a neurologist’s report. The general practitioner finds fault with that report, but the neurologist stands by his or her opinion. The matter proceeds to trial. Now the plaintiff’s counsel has a glorious opportunity to divide and conquer: he or she can call both the GP and the neurologist to trial to provide what will surely be conflicting evidence…

And so, dear reader, the matter continues to fire the neurons of all involved in the IME process and stretch the sinews of accountants across this fair land. Further investigation will surely follow. Until then, it may be worth recalling that “in the land of the blind, the one-eyed man is king”.