A recent decision of the Tax Court of Canada provides important clarification for physicians and medical clinics operating under fee-sharing and cost-sharing models. In MedSleep Inc. v. The King (2025 TCC 70), the Court considered whether arrangements between a clinic and physicians resulted in taxable administrative services or exempt medical services for GST/HST purposes. The decision is particularly significant given the potential GST/HST cost exposure for physicians who provide exempt medical services and are not entitled to claim input tax credits.
Under the Excise Tax Act, the provision of a medical service by a physician is generally an exempt supply. Physicians therefore do not charge GST/HST on their professional services and typically cannot recover GST/HST paid on inputs. The CRA’s concern in MedSleep was that the clinic was providing taxable administrative services—such as office space, utilities, administrative support, and billing services—to physicians, rather than jointly providing medical services to patients. If accepted, this characterization would have resulted in unrecoverable GST/HST costs for physicians.
MedSleep Inc. operates sleep clinics across Canada. It hires staff, owns and maintains clinic facilities and diagnostic equipment, and works with physicians to deliver medical sleep services to patients. The commercial arrangement reflected a shared objective of jointly providing medical sleep services. Fees were allocated between a technical fee retained by the clinic and professional fees paid to physicians under a fee-sharing agreement. CRA argued that this structure supported a taxable supply of administrative services.
The Court’s analysis focused on the true commercial arrangement and applied a holistic legal test to determine what was being supplied to patients. Where elements of a transaction cannot reasonably be separated, the supply must be viewed as a single supply. In this case, it did not make sense to isolate components such as equipment, staff, or utilities, as none had independent value to patients on their own. Patients attended the clinic to receive a complete medical sleep service, including testing, interpretation, and diagnosis by physicians.
The Court found that the clinic’s services and the physicians’ professional services were deeply intertwined. The facilities, technicians, and equipment provided by the clinic only had meaning when combined with physician expertise. Without medical interpretation, the clinic services alone could not achieve their purpose. Viewed together, the clinic and physicians were jointly delivering a single, integrated medical service.
As a result, the Court concluded that there was a single compound supply, with the dominant element being the provision of exempt medical services. The presence of fee-sharing, cost allocation, or centralized clinic operations did not convert the arrangement into a taxable administrative supply.
This decision has broader implications for medical clinics across Canada. Integrated clinic models are common and reflect how medical services are delivered within Canada’s publicly funded health care system. Fee-sharing arrangements between clinics and physicians are widely used and accepted under provincial billing regimes. The decision provides helpful guidance on how these arrangements should be interpreted for GST/HST purposes.
The key takeaway is that physician–clinic arrangements can work from a commodity tax perspective when they reflect a genuine, integrated provision of medical services. However, outcomes remain highly fact-specific. Arrangements that resemble stand-alone administrative services may still attract GST/HST, resulting in unrecoverable costs for physicians. Given the potential exposure, clinic structures and fee-sharing agreements should be reviewed proactively.
Please get in contact with us at [email protected] for further details. Elliott Stone, CPA, CA, is the founder of MD Tax Physician Services in Toronto.