Dear Sirs:
Re: OHIP adjustments
This is in reply to your letters of July 17 and 29, 1991 requesting our opinion on the tax treatment of the OHIP 2% retroactive fee adjustment announced by the Ontario Government in May 1991. The fee adjustment is for fiscal periods ending March 31, 1990 and March 31, 1991 and was to be paid out in June 1991 at the earliest.
You are of the opinion that the 2% retroactive OHIP adjustment should be recorded by the doctors in the year it was known to be receivable regardless of when the actual cash was received. Thus, in your view, the retroactive fee adjustment should be included in income in May 1991.
According to the CICA Handbook, recognition of revenue requires that the revenue is measurable and that ultimate collection is reasonably assured. When there is reasonable assurance of ultimate collection, revenue is recognized even though cash receipts are deferred. When there is uncertainty as to ultimate collection, it may be appropriate to recognize revenue only as cash is received, which is reflected for income tax: purposes in recognition of the revenue coupled with a claim for a reserve for doubtful accounts.
Based on the information you have supplied it would appear that the amount of fee rebate adjustment is measurable and there does not appear to be any uncertainty as to ultimate collection. Therefore, in our view, the anticipated revenue should be recorded in the books i May 1991, when it was known to be receivable.
We trust this is the information you require.
Yours truly,
for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch