Please note that the following document, although correct at the time of issue, may not represent the current position of the Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence.
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
XXXXX
XXXXX
XXXXX
Case Number: 111118
Attention: XXXXX
December 23, 2009
Dear XXXXX:
Subject:
GST/HST INTERPRETATION
Residential Care Facilities of XXXXX
Thank you for your letter of XXXXX, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to certain residential care facilities. We apologize for the delay in providing our response.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
XXXXX, you have requested that we issue a GST/HST interpretation rather than a ruling as you had originally requested in your letter of XXXXX.
We understand as follows:
1. In XXXXX, XXXXX (Corporation 1) constructed a XXXXX unit residential care facility (RCF 1) that was leased to XXXXX (the Operator). The Operator uses RCF 1 to make supplies of independent living to residents of the facility.
2. Corporation 1 claimed input tax credits (ITCs) in respect of the construction of RCF 1 and accounted for GST on an appraised value of the facility upon completion of the construction and commencement of the lease of RCF 1 to the Operator. Corporation 1 claimed a GST/HST new residential rental property (NRRP) rebate in respect of all the residential units in RCF 1. Corporation 1 did not collect GST on the lease payments made by the Operator.
3. In XXXXX, Corporation 1 completed the construction of an addition to RCF 1. The addition, which contained XXXXX units, was leased to the Operator under a lease agreement separate from the lease agreement referred to above. The Operator uses the addition to make supplies of assisted living to residents of the facility.
4. In XXXXX, Corporation 1 completed the construction of another addition to RCF 1 by expanding the original addition. This second addition contained XXXXX units and was leased to the Operator under a lease agreement separate from the two lease agreements referred to above. The Operator uses this addition to make supplies of assisted living to residents of the facility.
5. Corporation 1 claimed ITCs in respect of the construction of both additions and collected GST from the Operator on the lease payments for each addition. Corporation 1 did not account for GST on the fair market value of either of the additions upon completion of the construction and lease to the Operator. Presumably no NRRP rebate was claimed in respect of any residential unit in either of the additions.
6. In XXXXX, XXXXX (Corporation 2) completed the construction of a residential care facility (RCF 2) that contained XXXXX independent living units and XXXXX assisted living units. In the same year, Corporation 2 leased RCF 2 to the Operator who uses the facility to make supplies of independent living and assisted living to residents of the facility.
7. Corporation 2 claimed ITCs in respect of the construction of RCF 2 and, upon completion of the construction and commencement of the lease of the property to the Operator, accounted for GST on an appraised value of that portion of RCF 2 that included the independent living units. Corporation 2 claimed an NRRP rebate in respect of the XXXXX independent living units. Corporation 2 collected GST from the Operator on the lease payments for that portion of RCF 2 that included the XXXXX assisted living units.
8. In XXXXX, Corporation 2 completed the construction of an addition to RCF 2 that consisted of XXXXX assisted living units. In the same month, the addition was leased to the Operator under a lease agreement separate from the lease agreement referred to above. The Operator uses the addition to make supplies of assisted living to residents of the facility. There is no indication whether Corporation 2 claimed ITCs in respect of the construction of the addition, whether it accounted for GST on the fair market value of the addition upon completion of the construction and lease to the Operator, whether it collected GST on the lease payments made by the Operator, or whether it claimed an NRRP rebate in respect of any of the residential units in the addition.
9. The Operator receives operating funding from a provincial government body in respect of the assisted living beds in RCF 2, including the addition. There is no indication whether the Operator receives funding in respect of the assisted living beds in RCF 1.
10. In XXXXX, XXXXX (Corporation 3) completed the construction of a residential care facility (RCF 3) that contained XXXXX independent living units and XXXXX assisted living units. Upon completion, RCF 3 was leased to the Operator who uses the facility to make supplies of independent living and assisted living to residents of the facility.
11. Upon completion of the construction and commencement of the lease of RCF 3 to the Operator, Corporation 3 accounted for GST on an appraised value of that portion of RCF 3 that included the independent living units. There is no indication whether Corporation 3 claimed ITCs in respect of the construction of RCF 3 or an NRRP rebate in respect of any of the residential units in RCF 3. Corporation 3 collected GST from the Operator on the lease payments for that portion of RCF 3 that included the XXXXX assisted living units.
12. In XXXXX, Corporation 3 completed the construction of an addition to RCF 3 that consisted of XXXXX assisted living units. In that same month, Corporation 3 leased the addition to the Operator under a lease agreement separate from the lease agreement referred to above. The Operator uses the addition to make supplies of assisted living to residents of the facility. There is no indication whether Corporation 3 claimed ITCs in respect of the construction of the addition, whether it accounted for GST on the fair market value of the addition upon completion of the construction and lease to the Operator, whether it collected GST on the lease payments made by the Operator, or whether it claimed an NRRP rebate in respect of any of the residential units in the addition.
13. There is no indication whether the Operator receives funding in respect of the assisted living beds in RCF 3. For purposes of this interpretation, we assume that the Operator receives operating funding from a provincial government body in respect of the assisted living beds in RCF 1 and RCF 3, including the additions to those facilities.
14. None of the Corporations iFootnote 1 are eligible for a rebate under sections 256.1 or 259.
15. For purposes of this response, we will assume that the Operator's supplies of assisted living to residents of the Facilities and additions thereto are made in accordance with the XXXXX and that the supplies that include the provision of an assisted living unit are single supplies that are not exempt under section 6 of Part I of Schedule V to the ETA.
INTERPRETATIONS REQUESTED
1. With respect to RCF 1, you are requesting confirmation that Corporation 1 will not have to account for GST under the change in use rules in the ETA with respect to each addition that was made to RCF 1 as a result of the legislative amendments that were announced on February 26, 2008.
2. With respect to RCF 2, you would like confirmation that:
(a) Effective February 27, 2008, the lease of RCF 2 will not be considered two supplies under the deeming provisions of subsection 136(2).
(b) Corporation 2 is not required to account for GST under the change in use rules in the ETA with respect to the lease of that part of RCF 2 that includes the XXXXX assisted living units as a result of the legislative amendments announced on February 26, 2008.
(c) The addition to RCF 2 is subject to GST under the provisions of subsection 191(4) based on the fair market value of the addition at the time of the self-supply, but that subsection 191.1(2) will not apply to determine the GST payable on the supply.
(d) Corporation 2 is eligible for the NRRP rebate in respect of the XXXXX assisted living units in the addition to RCF 2.
3. With respect to RCF 3, you would like confirmation that:
(a) Effective February 27, 2008, the lease of RCF 3 will not be considered two supplies under the deeming provisions of subsection 136(2).
(b) Corporation 3 is not required to account for GST under the change in use rules in the ETA with respect to the lease of that part of RCF 3 that includes the XXXXX assisted living units as a result of the legislative amendments announced on February 26, 2008.
(c) The addition to RCF 3 is subject to GST under the provisions of subsection 191(4) based on the fair market value of the addition at the time of the self-supply, but that subsection 191.1(2) will not apply to determine the GST payable on the supply.
(d) Corporation 3 is eligible for the NRRP rebate in respect of the XXXXX assisted living units in the addition to RCF 3.
INTERPRETATIONS GIVEN
Background
Before addressing your specific questions, it will be helpful to review certain definitions and other provisions in the ETA.
Definitions
The phrase "residential care facility" is not used in the ETA. For purposes of this response, a residential care facility includes any residential facility at which an individual intends to reside for an indefinite period where the individual receives additional property and services together with a room or suite in the facility. Such additional property and services may include meals, nutritional, housekeeping, laundry, security monitoring and nursing care services, scheduled transportation, social, recreational, educational and religious services, personal supervision, personal care, and assistance with the activities of daily living (e.g., bathing, dressing, grooming, eating, ambulating).
A "residential unit" is defined in subsection 123(1) to include:
(a) a detached house, semi-detached house, rowhouse unit, condominium unit, mobile home, floating home or apartment,
(b) a suite or room in a hotel, a motel, an inn, a boarding house or a lodging house or in a residence for students, seniors, individuals with a disability or other individuals, or
(c) any other similar premises,
or that part thereof that
(d) is occupied by an individual as a place of residence or lodging.
A "residential complex" is defined in subsection 123(1) to include a building or that part of a building in which one or more residential units are located, together with certain other elements, such as common areas of the building and the land on which the building is situated that is reasonably necessary for the use and enjoyment of the building as a place of residence for individuals.
A room or suite in a residential care facility that is occupied by an individual as a place of residence or lodging is a residential unit. A residential care facility, or that part of a facility, that includes residential units, together with the other elements discussed in the immediately preceding paragraph, is a residential complex.
Accordingly, the residential complex portion of a Facility would generally include all the residential units in the facility regardless of whether the units are used in providing independent living or assisted living.
Characterization of supplies
In making supplies of independent living and assisted living to residents in the Facilities, the Operator may be making multiple supplies or a single supply to a resident. With respect to independent living, if the Operator is making multiple supplies and one of the supplies is that of a residential unit, provided that supply is not incidental to another supply, the supply may be exempt under section 6 of Part I of Schedule V to the ETA. If the Operator is making a single supply, it will be necessary to characterize that supply, i.e., to determine what, in substance, is being supplied.
Possible exempting provisions iiFootnote 2
Depending on the nature of a supply, the supply made by the Operator to a resident may be exempt under one of the following provisions:
• Section 6 of Part I of Schedule V to the ETA, which, in part, exempts the supply of a residential unit in a residential complex by way of lease for the purpose of its occupancy as a place of residence by an individual, where the period throughout which continuous occupancy of the unit is given to the same individual for at least one month.
• Section 2 of Part IV of Schedule V to the ETA, which, in part, exempts the supply of a service of providing care, supervision and a place of residence to individuals with a disability in an establishment operated by the supplier for the purpose of providing such service.
• Section 2 of Part II of Schedule V to the ETA, which exempts the supply of an institutional health care service made by the operator of a health care facility if the service is rendered to a patient or resident of the facility, other than the supply of certain services performed for cosmetic purposes. The phrases "institutional health care service" and "health care facility" are defined in the appendix to this letter.
Head lease of a residential complex
Prior to the legislative amendments announced on February 26, 2008, section 6.1 of Part I of Schedule V to the ETA provided, in part, that the head lease of a residential complex, or that part of a building that forms part of a residential complex, may have been exempt for each lease interval. iiiFootnote 3 The head lease of the complex or part was exempt for each lease interval if, throughout the lease interval, the lessee made, or held the complex or part for the purpose of making, supplies of the complex or part and all or substantially all (90% or more) of those supplies were exempt under section 6 of Part I of Schedule V to the ETA.
Section 6.1 of Part I of Schedule V to the ETA must be read with reference to the property being supplied under a particular lease. The property being supplied could be all of the property that includes a Facility or only the property included in an addition to a Facility and would be determined based on the property described in the particular lease.
In determining whether the exemption in section 6.1 of Part I of Schedule V to the ETA applied to a supply of the residential complex portion of a Facility made by a Corporation to the Operator, it is necessary to distinguish between the Operator's supplies of property (i.e., supplies of residential units in the residential complex) and supplies of services that include the provision of a residential unit in the complex or part. It is only the Operator's supplies of property (i.e., residential units) that must be considered in determining whether all or substantially all of the Operator's supplies are supplies of the complex or part that are exempt under section 6 of Part I of Schedule V to the ETA. For purposes of the "all or substantially all" test in section 6.1, supplies of services by the Operator are not taken into account in determining whether the head lease is exempt under section 6.1. Where the supply of a service includes the provision of a room in the facility or addition, the supply is nonetheless a service and as such, would not enter into the determination as to whether all or substantially all of the Operator's supplies of the complex or part are exempt under section 6 of Part I of Schedule V to the ETA.
For example, if the Operator's supply of independent living to a resident in a Facility is characterized as a single supply of property (and more specifically, a supply of a residential unit that is exempt under section 6 of Part I of Schedule V to the ETA) and the supply of assisted living is characterized as a single supply of a service (that includes the provision of a residential unit), only the supply of the property would be considered in determining whether all or substantially all of the Operator's supplies are exempt supplies under section 6 and, therefore, whether a Corporation's supply of the residential complex to the Operator is exempt under section 6.1 of Part I of Schedule V to the ETA. In this example, the supply of the residential complex portion of a Facility, or addition to a Facility, from a Corporation to the Operator is exempt under section 6.1 if all or substantially all of the Operator's supplies of the property (i.e., the residential units used for independent living) are exempt supplies under section 6.
With respect to a supply of the residential complex portion of a Facility, or an addition to a Facility by way of lease made by a Corporation to the Operator, if the Operator does not make any supplies that are exempt under section 6 of Part I of Schedule V to the ETA (e.g., the lease of an addition that only includes assisted living units used in making supplies of services to the residents), section 6.1 of the same Part will not apply to the Corporation's supply to the Operator where the lease payment in respect of the supply became due before February 27, 2008, or was paid before that date without having become due. As no other exemptions apply, such a supply by a Corporation to the Operator was subject to GST. As the recipient of these taxable supplies, the Operator was required to pay GST.
Paragraph 6.11(b) of Part I of Schedule V to the ETA, as introduced in the legislative amendments announced on February 26, 2008, provides, in part, that the head lease of a residential complex, or that part of a building that forms part of a residential complex, is exempt where the lessee uses the complex in the course of making exempt supplies and as part of the supplies, gives possession or use of all or substantially all of the residential units in the complex or part under leases, licences or similar arrangements for the purpose of their occupancy as a place of residence by an individual. As such, where the Operator provides all or substantially all of the residential units in a Facility or addition to individuals as places of residence as part of making exempt supplies to the residents, regardless of whether the Operator's supply to a resident is that of property or a service, a Corporation's lease of the residential complex, or part, to the Operator will be exempt under section 6.11.
Section 6.11 of Part I of Schedule V to the ETA generally applies to supplies for which consideration becomes due after February 26, 2008 without having been paid before that date or is paid after that date without having become due. Supplies for which consideration becomes due or was paid before February 27, 2008 will also be exempt under section 6.11 unless the supplier charged, collected or remitted an amount as or on account of tax in respect of the lease payments. If a supplier did charge, collect or remit an amount as or on account of tax, such head leases would be taxable supplies unless they are exempt under section 6.1 of Part I of Schedule V to the ETA.
Self-supply rules
A deemed sale and repurchase (a self-supply) occurs under section 191 where the construction of a residential complex, or an addition to a multiple unit residential complex, is substantially complete and:
(a) the builder of the complex or addition gives possession or use of the complex, or a residential unit in the complex or addition, to an individual who is the first individual to occupy the complex, or a unit in the complex or addition, as a place of residence after substantial completion of the construction,
(b) possession or use of the complex, or a residential unit in the complex or addition, is given under a lease, licence or similar arrangement, and
(c) the lease, licence or similar arrangement is entered into for the purpose of occupancy of the complex, or a unit in the complex or addition, by the individual as a place of residence.
Prior to the legislative amendments announced on February 26, 2008, subsection 191(10) provided, in part, that the self-supply rules in section 191 apply to a builder who makes a supply of a residential complex or addition by way of lease that is an exempt supply under section 6.1 of Part I of Schedule V to the ETA to a recipient who is acquiring the complex or residential units in the complex or addition for the purpose of making supplies that are exempt under section 6 of the same Part and gives possession of the complex or addition to the recipient. The builder in such a case is deemed to have given possession of the complex or a residential unit in the complex or addition to an individual under a lease, licence or similar arrangement for the purpose of its occupancy by an individual as a place of residence. As a result, the builder is deemed, under subsection 191(1), (3) or (4) to have made and received a taxable supply of the complex or addition and to have paid and collected tax calculated on the fair market value of the complex or addition.
Of note is that subsection 191(10) would not apply where the recipient of the supply (i.e., lessee) was acquiring the complex or addition for the purpose of making supplies that are not exempt under section 6 of Part I of Schedule V to the ETA. In such a case, the self-supply rules would not apply to a builder.
If a self-supply is required under section 191, it occurs at the later of the time construction of the complex or addition is substantially completed and the time possession of the complex, addition or a residential unit in the complex or addition is given to a person.
In the case of a multiple unit residential complex or an addition to a multiple unit residential complex, the builder is treated as having sold and repurchased the whole of the complex or addition at its fair market value.
When a builder is deemed to have self-supplied a complex or addition, the builder is required to account for the GST/HST based on the fair market value of the complex or addition in calculating the builder's net tax for the reporting period in which the self-supply occurs.
We will now address each of your interpretation requests.
Interpretation 1
With respect to each addition to RCF 1, the change in use rules will not apply to Corporation 1 as a result of the legislative amendments announced on February 26, 2008.
If Corporation 1 chooses to, it may file an election under section 236.4 with respect to each addition made to RCF 1. Such an election is required to be filed with the return for a reporting period that ends before February 27, 2010.
Explanation
Change in use
The ETA contains change in use provisions that may apply where a registrant last acquired capital real property for use in commercial activities and the registrant begins to use the property exclusively for other purposes. Of particular importance in this case is that the change in use provisions apply only in respect of capital property.
Subsection 195.1(2) provides (other than for certain purposes that are not relevant to this case) that an addition to a multiple unit residential complex is not capital property of a builder of the addition at any particular time unless construction of the addition is substantially complete and at or after the time of substantial completion and at or before the particular time, the builder was deemed to have made a self-supply of the addition under subsection 191(4). Accordingly, the additions to RCF 1 will be capital property of Corporation 1, and the change in use provisions may apply to Corporation 1, only if it is a builder of the addition and Corporation 1 was deemed to have made a self-supply of the addition prior to the Corporation's supplies of the addition becoming exempt under section 6.11 of Part I of Schedule V to the ETA.
A builder of an addition to a multiple unit residential complex includes a person who, at a time when the person has an interest in the real property on which a residential complex is situated, carries on, or engages another person to carry on for the person, the construction of the addition to the complex. Accordingly, Corporation 1 is a builder of each of the additions made to RCF 1.
With respect to each addition to RCF 1, assuming the Operator did not make any supplies that were exempt under section 6 of Part I of Schedule V to the ETA, subsection 191(10), as it read prior to its amendment, did not apply. If the self-supply rules did not apply to Corporation 1 with respect to an addition, the addition is deemed not to be capital property of Corporation 1 and the change in use rules would not apply. ivFootnote 4
Election under section 236.4
The election under section 236.4 is generally available to a builder who has not accounted for tax in respect of a self-supply of a residential complex or an addition thereto. The election allows the builder to adjust their net tax to take into account the tax on the fair market value that is owing on a self-supply, the amount of an NRRP rebate to which the builder may be entitled and any tax payable on the construction of the complex or addition that was not previously claimed as an ITC. For more information on the election, see GST/HST Info Sheet GI-050, Residential Care Facilities and the GST/HST Election to Adjust Net Tax for the Self-Supply of a Residential Complex, and the election form, GST119, GST/HST Election to Adjust Net Tax for the Self-Supply of a Residential Complex.
By filing the election, a subsequent sale of the residential complex, which would generally include the additions, by Corporation 1 would generally be exempt under section 5 of Part I of Schedule V to the ETA. If the election is not filed, such a subsequent sale would generally be subject to tax.
If Corporation 1 chooses to file the election in respect of an addition and the Operator receives government funding in respect of operating the addition, see the explanation to Interpretation 2(c) regarding the application of section 191.1.
Interpretation 2(a)
If the supply of RCF 2 made by Corporation 2 to the Operator is composed of a residential complex and other real property that does not form part of the complex, subsection 136(2) will continue to apply after the legislative amendments of February 26, 2008.
Explanation
As you are aware, subsection 136(2) provides, in part, that where a supply of real property includes a residential complex and other real property that does not form part of the residential complex, the supply of the complex is deemed to be separate from the supply of the other real property and neither supply is deemed to be incidental to the other.
Subsection 136(2) may apply to the supply of a Facility from a Corporation to the Operator. While the residential complex portion of a Facility would generally include both independent living and assisted living units, there may be other parts of the facility that would not form part of the complex. For example, a room in a Facility that is subleased by the Operator to a third party for use as a hair salon would generally not form part of the residential complex. If a Facility contains an area that does not form part of a residential complex, the supply to the Operator by a Corporation would be a supply of a residential complex and a supply of other real property that is not part of the residential complex and neither supply would be incidental to the other.
For the remainder of this response, we will assume that a Facility is composed only of a residential complex.
Interpretation 2(b)
The change in use rules will not apply to Corporation 2 with respect to that part of RCF 2 that contains the assisted living units as a result of the legislative amendments announced on February 26, 2008.
However, if the supply of RCF 2 by Corporation 2 was exempt under section 6.1 of Part I of Schedule V to the ETA, vFootnote 5 Corporation 2 was required to account for tax under the self-supply rules on the fair market value of the entire residential complex (which would include both the independent living units and the assisted living units). The self-supply would occur at the later of the time construction of the complex was substantially complete and the time Corporation 2 gave possession of RCF 2 to the Operator under the lease.
In the event that Corporation 2 was making an exempt supply of RCF 2 to the Operator under section 6.1 of Part I of Schedule V to the ETA, the Operator was not required to pay tax on the supply.
Explanation
Change in use
Where the consideration for a supply became due before February 27, 2008, the supply of RCF 2 (which would include the independent living and assisted living units) by Corporation 2 would be exempt under section 6.1 of Part I of Schedule V to the ETA if the supply of all or substantially all of the independent living units by the Operator to residents are exempt under section 6 of Part I of Schedule V to the ETA and the supply of assisted living is a supply of a service.
If the supply of RCF 2 by Corporation 2 was exempt under section 6.1 of Part I of Schedule V to the ETA, Corporation 2 would not be required to account for tax under the change in use rules as a result of the legislative amendments. The supply would be exempt under section 6.1 before the legislative amendments and exempt under section 6.11 of the same Part after the legislative amendments.
Similarly, even if the supply of RCF 2 by Corporation 2 was not exempt under section 6.1 of Part I of Schedule V to the ETA for supplies where the consideration became due prior to February 27, 2008, viFootnote 6 Corporation 2 would not face a change in use as a result of the legislative amendments. The reason is that RCF 2 would not have gone through a self supply and would therefore not be capital property of Corporation 2 for the same reasons as were discussed in the explanation to Interpretation 1.
Self-supply
If the supply of RCF 2 by Corporation 2 to the Operator was exempt under section 6.1 of Part I of Schedule V to the ETA, the provisions of subsection 191(10) would apply and Corporation 2 would be deemed to have made a self-supply of the complex including the assisted living units. The tax payable on the self-supply of the complex is equal to the tax calculated on the fair market value of the complex at the later of the time construction of the complex was substantially complete and the time possession of the complex was given by Corporation 2 to the Operator. (If the Operator received government funding in respect of the residential units in the complex, see the explanation to Interpretation 2(c), below).
If Corporation 2 adjusts its net tax in the return previously filed for the reporting period in which the self-supply was required and remits all the net tax remittable on that return, Corporation 2 may be eligible to file an NRRP rebate application in respect of all qualifying residential units in the complex, provided that the rebate application is filed not later than February 26, 2010. For information on adjusting previously filed returns, see policy statement P-149R, Administrative Policy Regarding Adjustments to the Goods and Services Tax/Harmonized Sales Tax Return.
We would add that Corporation 2 may not be eligible to file the election under section 236.4 in respect of RCF 2. One of the eligibility criteria for filing the election is that the builder cannot have reported an amount as or on account of tax on a self-supply in a return which was filed, or required to be filed, before February 27, 2010. In this case, if Corporation 2 has accounted for tax on the self-supply of the residential complex, even if on only a portion of the complex (i.e., the independent living units), the election cannot be made.
Amounts collected in error
We would also point out that if the supply of RCF 2 by Corporation 2 to the Operator was exempt under section 6.1 of Part I of Schedule V to the ETA, the Operator was not required to pay tax on the supply. Where Corporation 2 collected amounts as or on account of tax in error from the Operator, Corporation 2 may refund or credit the amounts to the Operator and adjust its net tax in accordance with section 232 provided that the conditions and time limitations in that section are met. Further information on the time limitations and conditions for claiming refunds and credits is available in GST/HST Memoranda Series Chapter 12.2, Refund, Adjustment, or Credit of the GST/HST Under Section 232 of the Excise Tax Act, which is available on the CRA Web site.
Interpretation 2(c)
Corporation 2 was required to account for tax on the fair market value of the addition in August 2008 at the later of the time construction of the addition was substantially complete and the time Corporation 2 gave possession or use of the addition to the Operator.
It will be a question of fact whether amounts paid by the Operator to Corporation 2 meet the definition of "government funding" under subsection 191.1(1). Section 191.1 will apply to Corporation 2 with respect to the self-supply of the addition where the conditions of that section are met.
We would add that, subject to the general provisions, Corporation 2 is eligible for ITCs with respect to the construction of the addition.
Explanation
Self-supply
With the legislative amendments announced on February 26, 2008, subsection 191(10) now provides, in part, that the self-supply rules in section 191 will apply to a builder who makes a supply of a residential complex by way of lease that is an exempt supply under section 6.1 or 6.11 of Part I of Schedule V to the ETA and the other conditions in the applicable subsection of section 191 are met. If the recipient of that supply is acquiring the complex or units in the complex for the purpose of making exempt supplies that include giving possession or use of a residential unit for purpose of occupancy as a place of residence by an individual, the builder in such a case is deemed to have given possession of a residential unit in the complex to an individual under a lease, licence or similar arrangement for the purpose of its occupancy by an individual as a place of residence. As a result, the builder is deemed, under 191(4) in the case of an addition to a multiple unit residential complex, to have made and received a taxable supply of the addition and to have paid and collected tax calculated on the fair market value of the addition.
Application of section 191.1
It will be a question of fact whether amounts paid by the Operator to Corporation 2 meet the definition of "government funding" under subsection 191.1(1). Generally, section 191.1 provides for special deeming rules for builders who receive government funding in respect of a residential complex or of an addition thereto for the purpose of making residential units in the complex available to individuals referred to in paragraph 191.1(2)(b). Section 191.1 deems the amount of tax resulting from the self-supply to be the greater of tax on the fair market value of the residential complex or addition and the tax paid on the acquisition of the land and on any improvements to the property (e.g., the building), where:
• government funding in respect of a complex is paid or payable to a builder of the complex or of an addition thereto;
• the builder is deemed under any of subsections 191(1) to (4) to have, at any time, made and received a supply of the complex or addition thereto;
• at least 10% of the residential units in the complex are intended to be supplied to individuals referred to in paragraph 191.1(2)(b); and
• the builder, at or before that time, has received or can reasonably expect to receive government funding in respect of the complex.
Government funding is defined in subsection 191.1(1) to mean an amount of money paid or payable to a builder of a residential complex or an addition thereto for the purpose of making residential units in the complex or addition available to individuals in paragraph 191.1(2)(b). viiFootnote 7 In order for the amount of money to be government funding, the money must be paid or payable by a grantor or by an organization that received money from a grantor or from another organization that received money from a grantor. That is, the money must not flow through more than two intermediaries if the amount is government funding. A grantor is defined to include a government (other than a corporation all or substantially all of whose activities are commercial activities or the supply of financial services or any combination thereof).
ITCs
Given the deemed taxable sale of the addition under the self-supply rules, Corporation 2 is eligible for ITCs with respect to the construction of the addition, subject to the general provisions of the ETA.
Interpretation 2(d)
Provided the conditions of section 256.2 are met, Corporation 2 will be eligible to claim an NRRP rebate with respect to all qualifying residential units in the addition to RCF 2.
Explanation
In order for a Corporation to qualify for the NRRP rebate, the following conditions must be met:
• The Corporation must be a builder of a residential complex or an addition thereto and make an exempt supply of the complex or addition by way of lease, licence or similar arrangement where the supply is included in section 6.1 or 6.11 of Part I of Schedule V to the ETA and which results in the Corporation being deemed to have made and received a taxable supply by way of sale of the complex or addition under section 191.
• At the time that tax is deemed to be paid in respect of the deemed supply made under section 191, the residential complex or addition includes one or more qualifying residential units.
• The Corporation must not be entitled to include the tax payable on the deemed supply under section 191 in determining an ITC.
• In respect of the tax included in determining the NRRP rebate, the Corporation must not otherwise be entitled to include the tax in determining a rebate under section 254, 256, 256.1 or 259.
• The Corporation must file an application for a rebate within two years of the end of the month in which the tax is deemed to have been paid under section 191 in respect of the complex.
• The Corporation must have reported the deemed tax in respect of the deemed supply under section 191 in the return for the reporting period in which the tax was deemed to be collected and must have remitted any net tax remittable for that reporting period.
The definition of "qualifying residential unit" is set out in subsection 256.2(1) and is reproduced in the appendix to this letter. Of note is that prior to the legislative amendments announced on February 26, 2008, clause (a)(ii)(A) of the definition contained no reference to section 6.11 of Part I of Schedule V to the ETA and clause (a)(ii)(A.1) did not exist.
Interpretations 3(a) to 3(d)
The interpretations and explanations in 2(a) to (d) apply to Interpretation Requests 3(a) to 3(d), with references to Corporation 2 and RCF 2 being read as Corporation 3 and RCF 3, respectively.
The foregoing comments represent our general views with respect to the subject matter of your request. These comments are not rulings and, in accordance with the guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, do not bind the Canada Revenue Agency with respect to a particular situation. Future changes to the ETA, regulations, or our interpretative policy could affect this interpretation.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-954-4393. 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,
Hugh Dorward
Real Property Unit
Financial Institutions and Real property Division
Excise and GST/HST Rulings Directorate
Appendix
"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;
"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;
Individuals listed in paragraph 191.1(2)(b):
(i) seniors,
(ii) youths,
(iii) students,
(iv) individuals with a disability,
(v) individuals in distress or individuals in need of assistance,
(vi) individuals whose eligibility for occupancy of the units as a place of residence or lodging, or for reduced payments in respect of their occupancy as a place of residence or lodging, is dependent on a means or income test,
(vii) individuals for whose benefit no other persons (other than public sector bodies) pay consideration for supplies that include giving possession or use of the units for occupancy by the individuals as a place of residence or lodging and who either pay no consideration for the supplies or pay consideration that is significantly less than the consideration that could reasonably be expected to be paid for comparable supplies made by a person in the business of making such supplies for the purpose of earning a profit, or
(viii) any combination of individuals described in any of subparagraphs (i) to (vii)
"qualifying residential unit" of a person, at a particular time, means
(a) a residential unit of which, at or immediately before the particular time, the person is the owner, a co-owner, a lessee or a sub-lessee or has possession as purchaser under an agreement of purchase and sale, or a residential unit that is situated in a residential complex of which the person is, at or immediately before the particular time, a lessee or a sub-lessee, where
(i) at the particular time, the unit is a self-contained residence,
(ii) the person holds the unit
(A) for the purpose of making exempt supplies of the unit that are included in section 5.1, 6.1, 6.11 or 7 of Part I of Schedule V,
(A.1) for the purpose of making exempt supplies of property or a service that includes giving possession or use of the unit to a person under a lease to be entered into for the purpose of its occupancy by an individual as a place of residence, or
(B) if the complex in which the unit is situated includes one or more other residential units that would be qualifying residential units of the person without regard to this clause, for use as the primary place of residence of the person,
(iii) it is the case, or can reasonably be expected by the person at the particular time to be the case, that the first use of the unit is or will be
(A) as the primary place of residence of the person or a relation of the person, or of a lessor of the complex or a relation of that lessor, for a period of at least one year or for a shorter period where the next use of the unit after that shorter period is as described in clause (B), or
(B) as a place of residence of individuals, each of whom is given continuous occupancy of the unit, under one or more leases, for a period, throughout which the unit is used as the primary place of residence of that individual, of at least one year or for a shorter period ending when
(I) the unit is sold to a recipient who acquires the unit for use as the primary place of residence of the recipient or of a relation of the recipient, or
(II) the unit is taken for use as the primary place of residence of the person or a relation of the person or of a lessor of the complex or a relation of that lessor, and
(iv) except where subclause (iii)(B)(II) applies, if, at the particular time, the person intends that, after the unit is used as described in subparagraph (iii), the person will occupy it for the person's own use or the person will supply it by way of lease as a place of residence or lodging for an individual who is a relation, shareholder, member or partner of, or not dealing at arm's length with, the person, the person can reasonably expect that the unit will be the primary place of residence of the person or of that individual; or
(b) a prescribed residential unit of the person.
i 1. Collectively, Corporations 1, 2 and 3 will be referred to as "the Corporations", and "a Corporation" refers to any of the Corporations. Similarly, RCFs 1, 2 and 3 will be collectively referred to as "the Facilities", and "a Facility" refers to any of the Facilities.
ii 2. As noted in our understanding, we will assume that supplies of assisted living are not exempt under section 6 of Part I of Schedule V to the ETA.
iii 3. A lease interval is generally the period of time (e.g., a month) under a lease for which possession or use of the property is given and to which a lease payment is attributable.
iv 4. We note that even if all or substantially all of the Operator's supplies to residents in an addition were exempt supplies under section 6 of Part I of Schedule V to the ETA, the supply of the addition by Corporation 1 to the Operator was exempt under section 6.1 of the same Part in respect of those supplies for which the consideration became due or was paid before February 27, 2008. Section 6.11 of Part I of Schedule V to the ETA will exempt the supply of each addition made by Corporation 1 to the Operator in respect of supplies where the consideration becomes due after February 26, 2008 and was not paid before that date without having become due. In such a case, Corporation 1 would go from making an exempt supply under section 6.1 to an exempt supply under section 6.11 and the change in use rules would not apply.
v 5. As discussed in the Background section of this letter, with respect to the property that the Operator has acquired under a particular lease from a Corporation, if the Operator's only supplies of the property are supplies exempted by section 6, the lease of the property from the Corporation would be exempt under section 6.1.
vi 6. For example, if the supply by the Operator of independent living is not exempt under section 6 of Part I of Schedule V to the ETA.
vii 7. See the appendix for a list of individuals included in paragraph 191.1(2)(b).
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UNCLASSIFIED
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