How GST/HST applies to associate (aka independent contractor) arrangements is our most-asked question. The answer really varies from practitioner to practitioner because it depends on the specific arrangement – which we know varies across the board in our industry. Here’s a summary of how it works for most arrangements.

How it works

GST/HST applies to the portion charged/retained by the clinic if the clinic is providing a taxable service to the associate (think of rent, admin support, equipment, etc.). If the clinic and associate are “sharing fees” or if the associate is providing a service to the clinic (see below for an explanation on how that works), then GST/HST generally doesn’t apply.

What does this mean? If the associate pays the clinic GST/HST, this is essentially lost money for the associate.

Let’s say an Ontario ND associate is getting a 60% split. If 13% HST is charged on the clinic’s split, then that 60% becomes 55% after-tax – that means less money in the naturopath’s pocket. 

Let’s summarize:

  • If your contract has any “deal breakers” in it, the clinic needs to charge and collect GST/HST from the associate

  • If a contract is between two naturopaths, GST/HST generally won’t apply as long as there aren’t any deal breakers

  • If a contract is between different professions, it depends on who “owns” the patients. If the clinic owns the patients, GST/HST generally won’t apply

  • We can’t put enough caveats around all of this… it really depends on your contract

Start with your contract

The starting point is the contract between the associate and the clinic. We need to examine the terms of the contract to determine the appropriate GST/HST treatment. If you don’t have a contract – which we strongly advise against – the Canada Revenue Agency (CRA) will look at the substance of the relationship between the associate and the clinic. 

Deal breakers

If your contract contains any of the following, in our view the clinic is providing a taxable service to the associate, and GST/HST applies:

  • Rent – If your contract explicitly or implicitly refers to a rental arrangement (e.g., the clinic is providing a room to the associate, even if you don’t use the word “rent”), this suggests the clinic is receiving a payment in exchange for providing use of its facilities. That’s a taxable sale and it means GST/HST applies.

  • “Use of” wording – Many contracts we see have wording that the clinic is providing the “use of” something like a treatment room, admin services, etc. Just like rent, this suggests the clinic is providing a taxable service.

  • Minimum payment – Arrangements will frequently call for the clinic to get a split of the patient fees, subject to a monthly minimum. Because this could end up in a situation where the associate pays an amount that has nothing to do with her patient billings, in our opinion this implies the clinic is providing a taxable service.

Fee sharing arrangements between naturopaths

The CRA has issued a few public interpretations that talk about “bona fide fee sharing arrangements” (Information Bulletin B-109 and Policy Statement P-238 come to mind). What most people don’t realize is that this only applies to practitioners of the same profession. So if there’s a naturopath associate working at a chiropractor’s clinic, that guidance doesn’t apply. Don’t listen to accountants who tell you it does, because HBA – as the only tax firm in Canada that focuses exclusively on holistic practitioners - has received exclusive rulings from the CRA on this topic.

So what about two naturopaths who share fees? As long as the contract doesn’t have any deal breakers, GST/HST generally won’t apply. But be sure to talk to your accountant to make sure there aren’t any other tax traps!

Keep in mind, if the other party to the contract is a corporation that isn’t authorized to practise naturopathy (e.g., a general business corporation that owns and operates the clinic, but isn’t a professional corporation), then that’s not considered an arrangement between naturopaths.

Who the patient belongs to

(We know… a patient can’t really “belong” to a naturopath, and most colleges will have rules against this sort of thing. Unfortunately, the CRA is still catching up to those regulations, so we’ll use the CRA’s wording here.)

Let’s say a naturopath is an associate at a chiropractor’s clinic. As we discussed above, the general “fee sharing” exemption doesn’t apply. So how do we ensure the naturopath doesn’t have to pay GST/HST? It will depend on who the patient belongs to, per the contract.

If the patient belongs to the naturopath associate, then the CRA’s view is 100% of the revenue belongs to the naturopath. So the amount paid to the clinic must be in exchange for providing taxable services to the naturopath. That means GST/HST applies to the amount paid to the clinic.

On the other hand, if the patient belongs to the clinic, then the CRA’s view is – stay with us on this, it’s confusing – the clinic is providing naturopathic services to the patient, and the naturopath is providing naturopathic services to the clinic. The end result is GST/HST doesn’t apply.

How do you put this into effect? You need language in your contract that all patients are clients of the clinic. But to protect each party, you should still have clear language on who is the custodian of the patient records, and appropriate provisions on non-solicitation and non-compete arrangements.

Commissions on supplements and labs

Everything above applies just to service revenue. If either party gets a commission on supplements or lab sales, GST/HST will generally apply. Read up on Taxable Sales for Naturopaths for more information.

General rules will still apply

Keep in mind, the general criteria for naturopathy to be GST/HST exempt still apply. If the naturopath is performing non-exempt services - like cosmetic services, for example - then the analysis will be different. Take a look at Taxable Sales for Naturopaths for more information.

Advice

This is a massively complex exercise, so here are some quick tips to keep in mind:

  • Make sure you have a contract.

  • Talk to your accountant to ensure you have your bases covered.

  • Instead of having a minimum split, restructure the contract to pay a higher split to the clinic. The associate will save on GST/HST and the clinic owner gets the higher income she’s looking for.

  • If the contract is between a naturopath and a non-naturopath, make sure it’s clear who “owns” the patient.

  • Remember that GST/HST applies to commissions on supplement and lab sales.

  • For clinic owners, you could get a higher GST/HST refund by charging GST/HST on rental income. Talk to your accountant for more information.