Please note that the following document, although correct at the time of issue, may not represent the current position of the Canada Revenue Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence du revenu du Canada.
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 125176
Dear [Client]:
Subject: GST/HST RULING
Application of GST/HST to alcohol and drug rehabilitation programs
Thank you for […][your correspondence], concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the drug and alcohol rehabilitation programs offered by […] (the Corporation). We apologize for the delay in our response. […].
The HST applies in the participating provinces at the following rates: 13% in Ontario, New Brunswick and Newfoundland and Labrador, 14% in Prince Edward Island and 15% in Nova Scotia. The GST applies in the rest of Canada at the rate of 5% (Footnote 1) .
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
STATEMENT OF FACTS
Based on the information provided in [your correspondence] and […], we understand the facts as follows:
1. The Corporation is a for-profit organization that operates a [#]-bed residential facility (the Facility) to provide […][treatment programs and services to individuals with] substance dependence and other addictions, […][and certain other mental illnesses and disorders]. The Facility is located at […], […][Province A].
[…][Outline of clients and program elements].
[…][Describes facility and amenities].
[…]
2. The Facility is licensed by […][a provincial body] […]. The Facility is governed by […][relevant provincial legislation]. While the Corporation is licensed by [Province A] it does not receive any government funding.
[…][Information from the relevant provincial legislation]
3. The Corporation offers several programs [for individuals with substance dependence and other addictions]: […][These programs range from several days to several months]
[…]. The fees vary for each program and program length. […].
4. […][Outline of the Corporation’s treatment approach]
Thus, the fees include the following:
[…][Describes the Corporation’s admission procedures, detoxification services, addiction counselling, mental health services, recreation activities, amenities and associated programs]
5. Invoices issued to clients list one single fee reflecting the program enrolled in. An additional fee is charged for all client prescriptions, each additional night in detoxification and surcharges relating to private room requests. […][More than half the] fees charged to clients are paid for by the client or the client’s family members.
The remaining fees are […][covered by insurance] […].
Medical services rendered by the Medical Director are billed to the client’s provincial medical insurance plan. Clients who do not have valid provincial health plan coverage will be charged for physician visits, psychiatrist’s visits, lab work, and if necessary, hospitalization.
6. The staff at the Facility includes […]. In addition, there are […][several] counsellors (Psychotherapists) […]. The […][Psychotherapists] are full time and have specialized training in alcohol and drug addiction […].
[…][Also a] Physician (Medical Director) and […] Psychiatrist are on contract at the Facility. […]. Both doctors are on call 24 hours per day. Clients meet one-on-one with the Medical Director and the Psychiatrist 1-2 times per week (or more if required).
[…][Outline of how the doctors are paid]
The Facility also has […] [a] full-time RPN […] [with specialization in psychiatric nursing], [and several RNs and LPNs/RPNs] on staff. Nursing staff are on-site […][during the day and in the evenings and for longer hours when a new client starts detoxification]. The nursing staff is trained in alcohol and drug addiction and […]. The nursing staff is under the direction of the Medical Director.
The nursing staff provides daily nursing services to all clients for the duration of their stay. Services include personal care during detoxification, wound care, mental health assessments, glucose monitoring, blood pressure monitoring, the administration of vaccines, the tracking of infections, emergency first aid and assistance with medical care plans.
[…].
7. To be admitted into a program at the Facility, […]
8. […][Detailed outline of all the steps and staff involved in admission of clients]
9. Addiction assessment begins shortly after admission. The […][RPN] gathers information regarding a client’s treatment history, drugs consumed and additional medical information. This information is passed on to the [Psychotherapist] assigned to a client. Many residents have both addiction and mental illness.
To assess a resident’s mental health, [Psychotherapists] administer several psychological assessment tests to identify substance abuse and dependence disorders. […].
The tests are administered by the [RPN] or nursing staff and the results are reviewed by the clinical team (Medical Director, Psychiatrist, [RPN] and [Psychotherapists]). Each client also undergoes a psychiatric assessment by the Psychiatrist to diagnose any mental health issues.
[…][The relevant provincial legislation,] requires the Corporation to develop a care plan for each client. The care plan is developed based on the client’s diagnosis. Clients are required to follow the direction of the Medical Director and Psychiatrist for the length of their stay.
10. The client’s […] rehabilitation program […][consists of daily] activities which focus on mental health services and addiction counseling. The activities are based on psychological therapy and […][other] therapies when appropriate. […]. […][Exercise] and art […][programs are] also provided. […][Clients also undergo] Individual counselling, [and have] psychiatric and medical appointments […].
All therapy programs are offered on site […]
11. A client’s progress is assessed regularly by the [Psychotherapists] to determine whether a client is responding to treatment. The Psychiatrist also assesses each client near the completion of the program to evaluate the client’s mental health.
[…]
12. […][Describes a follow-up program]
13. […][Describes a shorter follow-up program].
14. […][Describes a follow-up support program]
15. In Canada the classification of mental health disorders follows either the Diagnostic Statistical Manual of Mental Disorders (DSM) published by the American Psychological Association or the International Classification of Diseases (ICD) published by the World Health Organization (WHO). Both the DSM and ICD include alcohol and drug abuse as a mental health disorder. http://www.parl.gc.ca/Content/SEN/Committee/381/soci/rep/report1/repintnov04vol1part2-e.htm
RULING REQUESTED
You would like to know whether the drug and alcohol rehabilitation programs rendered to residents at the Facility are exempt from GST/HST.
RULING GIVEN
Based on the facts set out above, we rule that the alcohol and drug rehabilitation treatment programs rendered to clients at the Facility are a single exempt supply of an institutional health care service under section 2 of Part II of Schedule V.
In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, the Canada Revenue Agency (CRA) is bound by the ruling(s) given in this letter provided that: no future changes to the ETA, regulations or the CRA’s interpretative policy affect its validity; and all relevant facts and transactions have been fully and accurately disclosed. […]
EXPLANATION
Generally, every recipient of a taxable supply (other than a zero-rated supply) made in Canada is required to pay GST/HST at the rate of 5%, 13%, 14% or 15% (depending on the place of supply) on the value of the consideration for the supply. Exempt supplies are listed in Schedule V and are not subject to GST/HST. Part II of Schedule V lists certain health care services that are exempt from GST/HST. For a supply of property or a service to be exempt from GST/HST under Part II of Schedule V a specific exempting provision included in Part II must apply to that supply.
Section 2 of Part II of Schedule V exempts a supply made by the operator of a health care facility of an institutional health care service rendered to patients or residents of the health care facility. However, sections 1.1 and 1.2 of Part II of Schedule V specifically exclude from exemption a supply that is a cosmetic service supply or a supply in respect of a cosmetic service supply, and a supply that is not a qualifying health care supply.
Section 1 of Part II of Schedule V defines the term “institutional health care service” as follows:
“institutional health care service” means any of the following when provided in a health care facility:
(a) laboratory, radiological or other diagnostic services,
(b) drugs, biologicals or related preparations when administered, or a medical or surgical prosthesis when installed, in the facility in conjunction with the supply of a service included in any of paragraphs (a) and (c) to (g),
(c) the use of operating rooms, case rooms or anaesthetic facilities, including necessary equipment or supplies,
(d) medical or surgical equipment or supplies
(i) used by the operator of the facility in providing a service included in any of paragraphs (a) to (c) and (e) to (g), or
(ii) supplied to a patient or resident of the facility otherwise than by way of sale,
(e) the use of radiotherapy, physiotherapy or occupational therapy facilities,
(f) accommodation,
(g) meals (other than meals served in a restaurant, cafeteria or similar eating establishment), and
(h) services rendered by persons who receive remuneration therefor from the operator of the facility;
Section 1 of Part II of Schedule V defines the term “health care facility” as follows:
“health care facility” means:
(a) a facility, or a part thereof, operated for the purpose of providing medical or hospital care, including acute, rehabilitative or chronic care,
(b) a hospital or institution primarily for individuals with a mental health disability, or
(c) a facility, or a part thereof, operated for the purpose of providing residents of the facility who have limited physical or mental capacity for self-supervision and self-care with
(i) nursing and personal care under the direction or supervision of qualified medical and nursing care staff or other personal and supervisory care (other than domestic services of an ordinary household nature) according to the individual requirements of the residents,
(ii) assistance with the activities of daily living and social, recreational and other related services to meet the psycho-social needs of the residents, and
(iii) meals and accommodation;
In addition, sections 1.1 and 1.2 of Part II of Schedule V must also be considered for the exemption in section 2 of Part II of Schedule V to apply. Section 1.1 specifically excludes from exemption, other than section 9, a supply that is a cosmetic service supply or a supply in respect of a cosmetic service supply. The term "cosmetic service supply" is defined in section 1 of Part II of Schedule V as a supply of a property or service that is made for cosmetic purposes and not for medical or reconstructive purposes.
Cosmetic procedures are surgical and non-surgical procedures that are generally aimed at enhancing one’s appearance that are not provided for the purpose of treating a medical condition or for reconstructive purposes, such as liposuction, hair replacement procedures, botulinum toxin injections, teeth whitening, as well as face lifts and breast augmentation surgery. These supplies are generally subject to GST/HST.
In addition, any separate supply of property, or any separate supply of a service is also subject to the GST/HST when the property or service relates to a cosmetic service supply. For example, a diagnostic service or nursing service supplied during breast augmentation surgery is considered a supply in respect of a cosmetic service supply.
Section 1.2 provides that for the purposes of Part II of Schedule V to the ETA, other than sections 9 and 11 to 14 (Footnote 2), a supply that is not a “qualifying health care supply” is deemed not to be included in Part II of that Schedule. Generally, supplies deemed not to be included in Part II of Schedule V would be taxable at the applicable rate of GST/HST.
The expression “qualifying health care supply” has been added to section 1 of Part II of Schedule V to the ETA and is defined to mean
“a supply of property or a service that is made for the purpose of
(a) maintaining health,
(b) preventing disease,
(c) treating, relieving or remediating an injury, illness, disorder or disability,
(d) assisting (other than financially) an individual in coping with an injury, illness, disorder or disability, or
(e) providing palliative health care.”
Please note that paragraph (d) of the definition of qualifying health care supply includes supplies made for the purpose of assisting an individual (other than financially) in coping with an injury, illness, disorder or disability. This would include services provided directly to the individual to cope with the limitations or effects of an injury. It would not include evaluations and reports done for the purpose of helping an insurer determine the type or amount of benefits that the individual is entitled to receive. It would also not include services supplied for financial purposes such as a medical evaluation or assessment performed for the purpose of determining the value of injuries for a settlement of a claim for damages.
Based on the requirements in section 2 of Part II of Schedule V and the definitions of the terms “health care facility”, “institutional health care service” and “qualifying health care supply”, six conditions must be met for a supply of property or a service to fall within the exemption:
1. The property or service must be included within the definition of “institutional health care service”;
2. The property or service must be provided in a health care facility;
3. The property or service must be supplied by the operator of the health care facility;
4. The institutional health care service must be rendered to a patient or resident of that facility;
5. The supply of the institutional health care service is not a cosmetic service supply; and
6. The supply of the institutional health care service is a qualifying health care supply.
Institutional health care service
The definition of an “institutional health care service” in section 1 of Part II of Schedule V lists certain property and services provided in a health care facility. The property and services provided to clients admitted into a treatment program at the Facility [that are] listed in the definition of an “institutional health care service” include the administration of drugs, laboratory, radiological or other diagnostic services (i.e., medication, blood/urine sample to diagnose health related issues upon admission and intake assessment, psychiatric assessment), accommodation, meals, and services performed by employees and/or independent contractors who are remunerated by the Corporation for their services (e.g., Physicians, Psychiatrist, Registered Nurses, [Psychotherapists], [Registered] Massage Therapists, […]) and are exempt under section 2 of Part II of Schedule V.
Property or services provided to clients at the Facility that are not listed in the definition of an “institutional health care service” will not be considered a supply of an institutional health care service unless the property or services are an input into the elements of an institutional health care service. The property or services not listed in the definition of an “institutional health care service” would be considered a separate supply with a separate application of GST/HST. For purposes of the exemption outlined in section 2 of Part II of Schedule V, section 138 may apply to deem particular supply of property or services to form part of the single supply of an institutional health care service where it is reasonable to regard the particular supply as incidental to the other supply, and where both supplies are made for a single consideration.
Health care facility
To determine whether certain property or service falls within the meaning of an “institutional health care service” as defined in section 1 of Part II of Schedule V, it must first be determined whether the property or service is provided in a “health care facility”. It is our view that the Facility is a health care facility pursuant to paragraph (b) of the definition of the term “health care facility” because it is an institution that is primarily for individuals with a mental health disability. The CRA considers an institution that is primarily for individuals with a mental health disability as a facility in which activities undertaken at the facility are designed to address the medical and psychological needs of individuals, and the facility has specialized equipment, facilities, and personnel with appropriate professional qualifications to care for individuals with a mental health disability.
The Corporation operates a residential treatment program that includes drug rehabilitation/alcohol treatment and other addiction counselling, education, and therapies […]. The Corporation has an onsite detoxification unit equipped with the necessary equipment and is staffed by qualified medical professionals. The Corporation is licensed by [Province A] under [the relevant provincial legislation] […]. The Corporation provides residential addiction and treatment services solely to individuals who have a dependency or an addiction to alcohol or drugs or other mental health disability including […]. All of these disorders are recognized by the World Health Organization as being mental health disabilities.
The Corporation is staffed by health care professionals including a Medical Director, Psychiatrist, Registered Nurse and […] [Psychotherapists] who are all trained in alcohol and drug addiction and who are remunerated by the Corporation for their services. Upon admission to the Facility, the clients are immediately under the care of the Medical Director and it is mandatory that each client undergo a medical and psychiatric assessment to determine additional medical and mental health issues that require treatment. Under the legislation, the Corporation is required to develop an individual care plan for each client. The care plan is developed jointly by the clinical team based on the client’s medical, social, chemical and mental health history.
The treatment program […][emphasizes group psychotherapy and other therapy] with […] [Psychotherapists]. Psychotherapy is a fundamental method of treatment for addiction and trauma. Clients are required to attend individual appointments with the Psychiatrist at least once a week, or on an increased frequency if deemed necessary by the Psychiatrist. Clients are required to follow the direction and supervision of both the Medical Director and the Psychiatrist for the duration of their stay in the Facility. In addition, the Corporation provides […][other] Programs which play an important role in the ongoing treatment of a client’s addiction and other mental health disability.
Clients undergo ongoing assessment of their progress throughout the duration of their program to evaluate the effectiveness of the treatment program. The ongoing assessments are conducted by the Medical Director, Psychiatrist, [Psychotherapists] and nurses.
In summary, it is our view that the activities, equipment and degree of qualified staff at the Facility are what one would expect at an institution designed for the rehabilitation and treatment of individuals with an alcohol and drug addiction and other mental health issues. Therefore, the Facility is a health care facility as that term is defined in section 1 of Part II of Schedule V.
The Corporation as operator of a health care facility
It is understood that the Corporation holds the license to operate the Facility under [the relevant provincial legislation] and is legally responsible for the activities, assets, risks, and liabilities associated with the operation of the Facility. Therefore, it is our view that the Corporation is the operator of the Facility.
Clients as patients or residents of a health care facility
For purposes of the exemption in section 2 of Part II of Schedule V, an individual must be a patient or resident of the Facility.
Although a client is self-referred (or referred by a family member) to the Facility if he believes he has an alcohol or drug addiction or other mental health disability, each client must be admitted to the Facility to participate in the residential treatment programs. The Conditions of Admission forms indicate that the client consents to treatment provided at the Facility by the Corporation and that all medical records become the property of the Corporation. In addition, each client becomes a patient of the Medical Director and the Psychiatrist for the duration of their stay at the Facility. Based on these facts, a client is considered to be a patient or resident of the Facility.
Cosmetic service supply
To be exempt from GST/HST the institutional health care service (i.e., the rehabilitation programs) supplied by the Corporation must not be a cosmetic service supply. The rehabilitation programs are supplied for medical purposes and not cosmetic purposes. Therefore, it is our view that the institutional health care service is not a cosmetic service supply or supply in respect of a cosmetic service supply.
Qualifying health care supply
To be exempt from GST/HST the institutional health care service (i.e., the rehabilitation programs) supplied by the Corporation must also be a qualifying health care supply. This means that the institutional health care service is supplied for the purpose of supply maintaining health, preventing disease, treating, relieving or remediating an injury, illness, disorder or disability, assisting (other than financially) an individual in coping with an injury, illness, disorder or disability, or providing palliative health care. It is our view that the institutional health care service supplied by the Corporation meet the definition of a qualifying health care supply.
Where the Corporation, as operator of a health care facility, provides, at the Facility, an institutional health care service that is not a cosmetic service supply and is a qualifying health care supply, the service will be exempt pursuant to section 2 of Part II of Schedule V.
[…][Additional information about the Corporation’s GST/HST obligations and entitlements]
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-954-7952. Should you have additional questions on the interpretation and application of GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.
Yours truly,
Alison Jones
Health Care Sectors Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate
FOOTNOTES
1 […].
2 Section 9 of Part II of Schedule V exempts supplies of properties and services covered by provincial health insurance plans, section 11 exempts supplies of food and beverages to a health care facility, section 13 exempts supplies of subsidized home care services and section 14 exempts supplies of various training services. Please see those sections for the conditions placed on the supply in order for it to be exempt.
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