High-Crest - Tax Court of Canada states that even modest government funding can cause the HST self-supply rule to apply to cost rather than the lower FMV
Although assisted–living facilities (or additions thereto) normally are subject to HST on their fair market value when substantially completed, ETA s. 191.1(2) effectively deems the HST to be payable on the greater of most costs and the fair market value where the builder received government funding "for the purpose of making residential units in the complex available to [seniors]."
Jorré J found that the Nova Scotia government’s service agreement with an incorporated nursing home (“High Crest”) to pay for the health care and raw food costs, and some of the accommodation costs, of the residents in a 20-bed addition to High Crest’s nursing home had this purpose, notwithstanding that the province did not, at least in form, pay for the construction costs. He stated:
High-Crest would not have made such a large and risky investment in the construction of the addition, a construction with a fair market value upon completion that was substantially less than its cost, if it did not expect the service contract to come into operation and be renewed for many years.
[T]he section … [applies] without regard to the extent of the support; in relation to the costs of the accommodation, the support can be modest or it can be the entire cost or anything in between.
Owen J had previously dismissed High Crest’s appeal, but that case was nullified by the Federal Court of Appeal for procedural reasons (Owen J having been asked by the Chief Justice of the Tax Court to decide the case based on the trial transcript before Jorré J).
Neal Armstrong. Summary of High-Crest Enterprises Ltd. v. The Queen, 2017 TCC 210 under s. 191.1(1) – government funding.