Multi-clinician practices often assume that medical services are GST-exempt — and generally they are. But how a clinic structures its internal fee arrangements can unexpectedly trigger GST on overhead payments.
Medical services are generally exempt, but administrative services are taxable. When a clinic charges an overhead fee to a doctor, it has to collect the GST on those fees – GST the doctor is unable to recover, effectively increasing overhead costs by 5%. Properly documented fee arrangements can avoid this issue.
The 2025 case MedSleep Inc. v. The King (2025 TCC 70) illustrates the topic. MedSleep ran clinics where contracted sleep physicians could diagnose patient sleep disorders. MedSleep provided the physical premises, administrative and technical staff, supplies and equipment, and so on.
The clinic had agreements with the sleep physicians under which MedSleep kept a portion of the professional fees earned (often around 20%), and the doctors kept the remainder.
The question was whether the sleep physicians were operating under a fee-sharing arrangement with MedSleep, or whether MedSleep was providing a separate supply of administrative services to the doctors. The tax department took the position that the portion retained by MedSleep was essentially payment for administrative or management services provided to the physicians — and therefore a taxable supply requiring GST collection.
Fortunately for the sleep doctors, the Tax Court disagreed. The judge had to determine whether MedSleep was charging the physicians 20% for a separate supply of administrative services, or whether the parties were simply sharing GST-exempt medical revenue.
The judge found that MedSleep had well-documented agreements with the physicians that at no point referred to the amounts payable to MedSleep by the physicians as fees payable for services. The agreement instead simply outlined the split of professional fees collected from patients. Further, the judge found the services provided by MedSleep were so interwoven with medical services that they could not be sensibly separated from the patient’s overall care package, indicating a single exempt supply.
For doctors and practices structured around fee-sharing arrangements, this provides some reassurance that GST may not apply simply because the clinic retains a portion of fees. If your agreement is genuinely a fee split with no separately priced admin services being sold to doctors, the risk of a CRA reassessment for GST could be reduced.
For physicians in multi-clinician settings, the key questions are:
- Is your arrangement truly a fee split?
- Are administrative services separately identified or priced?
- Does the documentation reflect the actual commercial reality?
