In order to comply with a requirement of the Ontario Health Insurance Plan (OHIP) that it would only pay for audiology tests performed by (or under the supervision of) a physician, the respondent company entered into an agreement with two physicians which stated that the physicians would pay the company for the use of its facilities and management services, and that they would employ the company owner (an audiologist but not a physician) to conduct hearing tests for them. The Minister assessed the company on the basis that it provided the two physicians with taxable supplies of building and equipment rentals together with management services, on which it had failed to charge and collect GST. The Tax Court found, on the basis of oral evidence that the agreement did not reflect the true legal relationship between the parties, that there was no taxable supply by the company.
In reversing this decision, Décary J.A. stated (paras. 13, 16):
Parties cannot elect to have an agreement valid for OHIP purposes and claim its invalidity for GST purposes....[T]he law will not permit a party to defend a tax claim by asserting that it made an intentional misrepresentation to another (OHIP) from which it derived a benefit (OHIP fees).