HST Received on Share of Product Income when not registered

I have a sole-prop client who provides an exempt medical service. She operates out of a clinic as a contractor. (The employee vs. contractor risks have all been considered and she is a 100% a contractor). She pays rent to this clinic and the clinic handles the booking system and payment system and sends her her income on a monthly basis and also bills her for her rent separately.

The clinic also offers some products for sale that are considered taxable supply and the clinic itself charges HST on these sales.

My client doesn’t actively sell these products but as part of the agreement with the clinic, she gets a share of all product sales every month and they send her her portion along with the HST charged on the product sales.

She’s not registered for GST/HST because 95% of her income is from exempt medical services so she wouldn’t even be able to claim much ITCs (5% of the HST on her rent at most). Her only taxable supply would be her share of the product sales, which only amounts to $2k per quarter at most.

How should we treat the HST received on her share of the product sales? I can think of two options without actually registering for GST/HST:

  1. She requests that the clinic retain the HST portion of her share of product sales and the clinic can remit it.
  2. She just reports the HST portion of her share of product sales as product sales.

What are your thoughts?

No to number 2.

1 seems to make some sense.

Good question for GST/HST Technical enquiries. 800-959-8287

Thanks, I will call them.

For number 1, what if the clinic refuses to comply with the request?

I think the total revenue will be considered including exempt sales, so it will be over the $30,000 small supplier and she will need to register for GST

Can you provide a source for including exempt income in the GST threshold calculation? That’s news to me. There is also zero rated supply, perhaps you’re confusing exempt supply with zero-rated supply?

I just spoke with CRA at the technical inquiries line (very knowledgeable and fast).

The agent I spoke with said that the clinic shouldn’t be giving the HST to my client and that they should be remitting it on behalf of my client since my client isn’t obligated to register for HST.

He understood that my client makes $150K+ of exempt medical service revenue and only around $8-10K in her share of product revenue. He agreed that she didn’t have to register for HST and that the clinic should retain the HST and remit it on her behalf.

As you found out - it would be best if the clinic remitted the HST, and gave her the share of product sales NOT including HST. Another way to look at it is this:

Per the ETA, if she COLLECTED HST, she must remit it, even if she hasn’t hit the $30,000 threshold. But, how does anyone know if she collected HST? If she IS a contractor, she should be issuing invoices to her clients/customers. If her invoices show HST being charged, that is the evidence.

If the clinic was giving her money for some reason (i.e. share of product sales), the clinic can’t arbitrarily “give” her HST. The clinic probably would probably like to say that she charged them HST, so the clinic can use that amount as an ITC. But, the clinic needs HER invoices to prove they PAID HST.