Introduction

Many Ontario physicians practise in arrangements where they pay a share of overhead to a clinic owner or facility operator in exchange for the use of office space, administrative support, equipment, and shared staffing. These overhead payments are a significant expense for the paying physician — and have specific tax treatment depending on how the arrangement is structured.

What Are Physician Overhead Payments?

In the context of medical practice, overhead payments (or overhead sharing arrangements) are amounts paid by an associate or tenant physician to the clinic owner or facility for access to the practice infrastructure. A typical overhead arrangement might involve:

A fixed monthly fee covering clinic space, reception, and billing administrative support

A percentage of the physician's OHIP billings paid to the clinic operator

A hybrid arrangement combining a base fee with a variable component

These are not employment arrangements — the physician is not an employee of the clinic. They are business-to-business arrangements where the physician (or their MPC) is paying for services and infrastructure.

Deductibility for the Paying Physician

For a physician operating through a professional corporation, overhead payments are a deductible expense of the corporation — they are costs incurred to earn the professional income generated through the clinic arrangement. The MPC deducts the overhead payment against its professional income, reducing the corporation's net income and corporate tax.

For an unincorporated physician, overhead payments are deducted on Form T2125 of the T1, as a professional or business expense.

The documentation requirement is the same as for other business expenses: invoices or fee statements from the clinic operator, records of amounts paid, and ideally a written overhead sharing agreement specifying the terms.

HST on Overhead Payments

The HST treatment of overhead payments depends on what the physician is receiving:

Rent for office space (no services component): Rental of commercial real property from a registrant is generally a taxable supply — HST applies. The physician's MPC pays HST on the rent and may claim an ITC to the extent the space is used in taxable commercial activities (non-insured services). If all services are OHIP-insured (exempt), no ITC is available.

Comprehensive overhead arrangement (space plus services): Where the fee covers not just space but also reception, billing, administrative services, and shared staffing, the overall supply may be a taxable service. The clinic operator is required to charge HST on the full fee, and the physician's MPC has the same ITC position as for rent.

Non-registrant clinic operators: Small clinic operators that are not registered for HST (annual taxable supplies below $30,000) would not charge HST. This is uncommon for established clinic operations but may arise in some arrangements.

The interaction between an exempt medical practice (OHIP billing) and the taxable overhead expense creates an ITC-limited position for most physicians — the HST paid on overhead is an unrecovered cost where the practice is primarily exempt.

Income Tax for the Receiving Clinic

For the clinic operator receiving overhead payments, those payments are income of the clinic corporation (or the individual, if the clinic is not incorporated). The appropriate characterisation depends on whether the payments are for rent (property income) or services (business income) — a distinction that can affect passive income rules and the SBD.

Where the clinic operator provides significant services as part of the overhead arrangement (reception, billing, admin), the income is more likely to be characterised as active business income rather than passive rental income.

When to Speak With a CPA

For physicians entering a new clinic arrangement or reviewing an existing overhead agreement, a CPA can assess the HST treatment, confirm the deductibility of the payments, and review the documentation practices required to support the expense claims.

Rotaru CPA works with Ontario physicians on practice overhead arrangements, HST compliance, and MPC tax planning. Book a consultation to review your clinic arrangement.