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New Tax Case Allows Doctors in Canada to Avoid Paying GST/HST on Their Overhead

New Tax Case Allows Doctors in Canada to Avoid Paying GST/HST on Their Overhead

Medsleep Tax Case Doctors GST HST Overhead

Summary

A recent Tax Court decision in MedSleep Inc. v. The King (2025 TCC 70) has given doctors some very good news. If you work in a clinic that takes a percentage of your billings instead of charging you for overhead, you may not have to pay GST or HST on that portion.

Our partner, Mohammed Al-khooly, CPA, CA, CFP, was asked about this case by the Canadian Healthcare Network. His comments can be found in their article here.

1. Dr. Patel’s Story – Losing Thousands Each Year to HST

Dr. Patel is a sleep doctor who works out of a private clinic.

  • The clinic keeps 20% of what he bills OHIP.

  • Because the clinic called this amount “overhead,” Dr. Patel thought he had to pay 13% HST on that 20%.

With $500,000 in yearly billings, that 20% equals $100,000. Paying 13% HST on that is another $13,000 out of his pocket every year.

The surprise? He never had to pay that HST at all – if the contract was set up the right way.

2. What Happened in the MedSleep Case

The Setup:
MedSleep runs sleep clinics across Canada. Doctors work in the clinics, see patients, and bill OHIP. MedSleep takes 20% of the fees and gives 80% to the doctor.

CRA’s Position:

  • CRA said that MedSleep was selling “administrative services” to the doctors.

  • Since services like office space, staff support, and billing help are taxable, CRA argued the 20% share was overhead.

  • If CRA was right, GST/HST would have to be charged on that 20%.

 

MedSleep’s Position:

  • MedSleep argued that there were no separate services.

  • Instead, both the clinic and the doctor work together to provide one combined medical service to the patient.

  • The 20% was simply MedSleep’s share of the fee, not a payment for overhead.

 

3. The Key Issue

The court had to decide:

  • Is this a fee split (no HST)

  • Or is the clinic selling overhead services to the doctors (HST applies)?

 

4. What the Court Decided

The court sided with MedSleep:

  • The contract clearly showed that the 20% was a share of the professional fee, not a separate service.

  • Because the main service was medical care (which is HST‑exempt), the entire amount was exempt.

 

5. Why This Matters for Doctors

If your clinic arrangement is set up as a fee split, you probably do not need to pay GST/HST on the clinic’s portion.

But if your contract looks like you are buying overhead services, you may be on the hook for GST/HST.

The wording of your contract will be of importance here.

6. What You Should Do Now

  1. Review your contract: Does it say the clinic is providing you services, or does it say you are splitting the fees?

  2. Make it clear: Ask for a contract that avoids the word “overhead” if it’s really just a split.

  3. Shop around: Different clinics use different models.

 

If you are paying HST on your clinic share right now, you may be able to save thousands by changing how your agreement is written.

The Take Away

The MedSleep decision is a big win for Canadian doctors. A small detail in your contract could mean the difference between paying thousands in tax or paying nothing at all.

If you are unsure how your agreement is set up, contact us at CoPilot Tax.