8 March 2011 GST/HST Ruling 118705 - Entitlement to 83% Rebate - [Corporation A]

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.

To:

[Client]

From:

Brian Olsen
Senior Rulings Officer
Municipalities and Health Care Services Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate

CASE NUMBER:

118705

DATE:

March 8, 2011

Subject:

GST/HST RULING
Entitlement to 83% Rebate - [Corporation A]

This is in response to your email dated October 8, 2009, regarding the eligibility of [...] [(Corporation A)] to claim an 83% public service body (PSB) rebate as a facility operator under section 259 of the Excise Tax Act in respect of its operations. We apologize for the delay in responding to your enquiry.

HST applies at the rate of 15% in Nova Scotia, 13% in Ontario, New Brunswick, and Newfoundland and Labrador, and 12% in British Columbia. GST applies at the rate of 5% in the remaining provinces and territories.

All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.

BACKGROUND

Based on the information provided in the letters (incl. enclosures) from [...] ([the Firm]) dated [mm/dd/yyyy], and [mm/dd/yyyy], as well as the information available on the website of [Corporation A], our understanding of the facts is as follows:

1. [Corporation A] was incorporated by Letters Patent issued [mm/dd/yyyy] and has operated [...] [(the Hospital)] since that time. [Corporation A] is resident only in the Province of Ontario.

2. [...] [Corporation B)] was incorporated by Letters Patent dated [mm/dd/yyyy].

[Corporation B] operated a long term care centre until [mm/dd/yyyy].

3. On [mm/dd/yyyy], [Corporation A] and [Corporation B] merged [...]. [Corporation B] has been an inactive corporation with no assets and no liabilities since that time.

4. [Corporation A] was designated as a hospital authority (with respect to [the Hospital]) by the Minister of National Revenue on [mm/dd/yyyy]. [...]

5. [Corporation A] is an approved charitable institution operating an approved charitable home for the aged under the Charitable Institutions Act. [Corporation A] is a registered charity within the meaning assigned to that expression by subsection 248(1) of the Income Tax Act. As a charity that has been designated as a hospital authority, [Corporation A] is a "public institution" for GST/HST purposes, as that term is defined in subsection 123(1) of the ETA.

6. [Corporation A] built a new long-term care facility ([the Facility]) and a new [...] (operated as part of [the Hospital]) at [...], Ontario. The project costs for both facilities were paid [...]. [...]

7. The construction of [the Facility] began in [mm/dd/yyyy]. [...]

8. For the period [mm/dd/yyyy] to [mm/dd/yyyy], construction costs were allocated at [...].

9. For the period [mm/dd/yyyy] to [mm/dd/yyyy], [the Hospital] claimed an 83% PSB rebate as a hospital authority on its costs associated with the construction of the continuing care hospital. It also claimed a 50% charity rebate for the costs associated with the redevelopment of the long-term care facility.

10. As a division of [Corporation A], [the Facility] subsequently claimed an additional 33% PSB rebate as a facility operator for the period [mm/dd/yyyy] to [mm/d/yyyy].

11. [The Facility] is a long-term care home that provides its residents with therapeutic palliative and geriatric care. The residents of [the Facility] require 24-hour supervision and continuous professional care in a supervised environment.

12. Approximately [...]% of the residents of [the Facility] suffer from dementia or other cognitive deficiencies. More than [...]% of residents are treated for cardiovascular disease. The remaining residents experience a variety of medical issues for which they require treatment, including depression and other psychological disorders and diabetes.

13. Approximately [...]% of residents pass away each year. According to [the Firm's] [...] dated [mm/dd/yyyy] (Technical Analysis), this is indicative of the degree of palliative care provided at [the Facility] as the majority of residents who pass away receive palliative care.

14. Each floor of [the Facility] has a 'treatment cart' stocked with equipment and supplies normally found in a medical or hospital treatment room. Residents typically receive treatment in their rooms.

15. [The Facility] has specialized medical equipment such as:

- mechanical lifts (ceiling lifts, lifts with slings, and portable lifts);
- oxygen;
- hospital beds and corresponding exit alarms;
- specialized mattresses;
- safety-grab bars;
- specialized chairs;
- glucose scanners, walkers, wheelchairs;
- therapeutic tubs;
- bariatric equipment;
- venus Doppler;
- electronic vital sign machine;
- glucometer;
- digital wheelchair scales;
- nursing call system;
- resident wandering systems;
- feeding pumps;
- suctioning machines; and
- bungee walker.

16. [The Facility] also uses medical supplies typically found in hospitals, including gloves, IV equipment, oxygen, masks, syringes, bandages, etc.

17. [Corporation A] operates [the Facility] in accordance with the Long-Term Care Homes Program Manual (Manual) developed by the MOHLTC. The purpose of the Manual is to outline the care, program and service standards, criteria and expectations in providing quality care, services and programs to persons residing in long-term care facilities. The MOHLTC performs and annual review for compliance with the standards contained in the Manual.

18. [Corporation A] receives base funding from the MOHLTC that is calculated using a set per diem rate based on the number of beds occupied. The per diem rate depends on the Level of Care Classification assigned to each resident.

19. Residents of [the Facility] are classified by the MOHLTC using the Resident Classification System for Long-term Care Facilities. This system is based on the Resident Classification System developed by the province of Alberta. [...]

20. For the year [yyyy], the residents of [the Facility] were classified as follows: [...]

21. According to the Technical Analysis, each resident of [the Facility] receives at least [...] (budgeted) hours per day of health care services, provided by a range of health care professionals, based on the resident's care plan.

22. The specific services provided to the residents include:

- nursing care and assistance with feeding, toileting, bathing and dressing;
- continence management and bladder scanning;
- physiotherapy;
- dental care;
- restorative care;
- intravenous therapy;
- tube feeding;
- suctioning for residents with a tracheotomy;
- wound care;
- dietary services;
- laboratory services; and
- foot care.

23. Each resident of [the Facility] has a medical chart similar to the medical chart found in a hospital. The medical chart contains the resident's care plan, a list of the resident's allergies, laboratory and other test results, consultations, any medications the resident is taking, treatments, referrals, and other related information.

24. In accordance with provincial legislation, each resident of [the Facility] must have a physician. If an incoming resident does not have a physician, [the Facility] will assign one. Residents are entitled to keep their own physician if the physician signs an agreement with [the Facility]; however, residents generally agree to have a physician assigned to them at [the Facility].

25. [The Facility] has [...] attending physicians, including a Medical Director who is also a physician. The Medical Director is responsible for [...] residents and is on duty every [...] and [...]. [...] physician is on duty [...] hours per week. The [...] physician is on duty [...] hours a week. Each resident's physician is available by phone during business hours and a physician is on call 24 hours per day, 7 days per week.

26. [The Firm] provided a copy of the [...] (Agreement) for [the Facility]. The Agreement provides, in part, that: [...]

27. The majority of the residents of [the Facility] meet their physician whenever the need arises. For most residents, meeting with the physician occurs on a weekly basis during medical rounds. Other residents meet with their physician on a less frequent basis. If a particular resident's physician is not onsite when the need arises, [the Facility] will phone the physician to address the issue.

28. Each physician has a "Doctor's Book" that is maintained by the nursing staff. The Doctor's Book is the main communication between the residents and the physician. It contains a list of any issues pertaining to a resident (e.g., behavioural, dietary, physical, etc.) and an envelope for all test results for the physician's review, sign-off and follow-up.

29. Each resident's physician is responsible for providing all medical orders and directs all medical interventions and treatments. Physicians also consult with other specialists where necessary.

30. In addition to the attending physicians, there are health care personnel on site during the day to assist with the provision of care to residents. The personnel consist mainly of registered nurses (RN), registered practical nurses (RPN), and resident care aides (RCA).

31. The physicians and the other health care personnel are responsible for reviewing the resident's care plan and reviewing and updating the resident's chart, progress notes, and treatment sheets as issues arise.

32. The nursing personnel assist the physicians in assessing residents and perform a multitude of duties relating to administering diagnostic tests and electrocardiograms. The nursing personnel are also involved in other duties related to patient care, including starting an intravenous, performing glucose scans, and giving residents injections and other medications.

33. [The Facility] is a Canadian health organization accredited by Accreditation Canada (formerly the Canadian Council on Health Services Accreditation). Accreditation Canada is a not-for-profit, independent organization that provides health organizations with an external peer review to assess the quality of their services based on standards of excellence.

OPINION REQUESTED

[The Firm] submits that [Corporation A] is a facility operator for purposes of claiming the public service body (PSB) rebate and, as such, [Corporation A] is entitled to claim an 83% PSB rebate of the GST for non-creditable tax charged for the period [...], to the extent that the non-creditable tax charged was incurred for the purpose of making facility supplies. You would like our opinion on this matter.

OPINION GIVEN

Based on our review of the documentation provided, and our discussions with [the Firm], it is our view that [Corporation A], a hospital authority, is not entitled to claim an 83% PSB rebate of the non-creditable tax charged in respect of its operation of [the Facility] as [the Facility] is not a public hospital or a qualifying facility where facility supplies are made.

COMMENTS

To be eligible for an 83% PSB rebate available under section 259, an entity must be a "hospital authority", a "facility operator" or an "external supplier".

A "hospital authority" is defined in subsection 123(1) as an organization that operates a public hospital and that is designated by the Minister of National Revenue as a hospital authority for GST/HST purposes.

A "facility operator" is defined in subsection 259(1) to mean "a charity, a public institution or a qualifying non-profit organization (other than a hospital authority), that operates a qualifying facility". An "external supplier" is defined in subsection 259(1) to mean "a charity, a public institution or a qualifying non-profit organization (other than a hospital authority or a facility operator), that makes ancillary supplies, facility supplies or home medical supplies".

[Corporation A] has been designated as a hospital authority by the Minister of National Revenue with respect to its operation of [the Hospital]. As a hospital authority, [Corporation A] is not a "facility operator" or an "external supplier" as the definition for each of these terms specifically excludes a person who is a hospital authority.

Generally speaking, section 259 provides that a hospital authority is entitled to claim an
83% PSB rebate of non-creditable tax charged, to the extent that it intends to consume, use or supply property or services in the course of operating a public hospital, operating a qualifying facility for use in making facility supplies, or making facility supplies, ancillary supplies or home medical supplies.

Operating a public hospital

GST/HST Policy Statement P-245 Determination of "...activities engaged in by the person in the course of operating a public hospital" for purposes of the 83% public service body rebate for hospital authorities (P-245) describes the criteria that must be met in order for a particular facility to be considered a public hospital for GST/HST purposes. P-245 also explains which activities carried on by a hospital authority constitute "activities engaged in by the person in the course of operating a public hospital".

In accordance with Policy P-245, a facility must have all of the following characteristics in order to be considered a public hospital:

• The services of medical practitioners, nursing staff and allied health professionals are available at all times to carry out the examination and diagnosis of patients and the provision of treatment and care.

• The services of health care personnel and health care equipment are utilized for the provision of health care services to the general public. This includes accommodation for laboratory, radiological and other diagnostic services, the administration of drugs, the use of operating rooms, case rooms, medical or surgical supplies and equipment.

• Inpatient beds and services are provided. Patients are assigned a bed in order to receive diagnostic services, medical treatment and care. Inpatient services are also provided in the public hospital to ensure the patient's necessities of life and comfort, such as nursing services on a 24-hour basis, food services and laundry services.

• Operational and capital funding is received from provincial or territorial governments for the provision of publicly insured inpatient and outpatient hospital services.

• The hospital authority operates the public hospital under the laws of provincial or territorial governments respecting hospitals.

[The Facility], a long-term care facility, is not a public hospital for GST/HST purposes as the facility does not meet all of the criteria described in P-245 In that regard, any entitlement to an 83% PSB rebate that [Corporation A] may have with respect to its operation of [the Hospital] does not extend to its operation of [the Facility].

Operating a qualifying facility for use in making facility supplies

As indicated above, a hospital authority is also entitled to an 83% PSB rebate to the extent that it intends to consume, use or supply property or services in the course of operating a qualifying facility for use in making facility supplies. Therefore, it must be determined whether [the Facility] is a "qualifying facility", as that term is defined in subsection 259(2.1).

Subsection 259(2.1) provides that a facility, or part of a facility, other than a public hospital, is a qualifying facility for a fiscal year, or any part of a fiscal year, of the operator if:

(a) supplies of services that are ordinarily rendered during that fiscal year or part to the public at the facility or part would be facility supplies if the references in the definition of "facility supply" in subsection 259(1) to "public hospital or qualifying facility" were references to the facility or part;
(b) an amount, other than a nominal amount, is paid or payable to the operator as qualifying funding in respect of the facility or part for the fiscal year or part; and
(c) an accreditation, licence or other authorization that is recognized or provided for under a law of Canada or a province in respect of facilities for the provision of health care services applies to the facility or part during that fiscal year or part.

Facility supply
Subsection 259(2.1) defines the term "facility supply" as an exempt supply (other than a prescribed supply) of property or a service in respect of which
(a) the property is made available, or the service is rendered, to an individual at a public hospital or qualifying facility as part of a medically necessary process of health care for the individual for the purpose of maintaining health, preventing disease, diagnosing or treating an injury, illness or disability or providing palliative health care, which process
(i) is undertaken in whole or in part at the public hospital or qualifying facility,
(ii) is reasonably expected to take place under the active direction or supervision, or with the active involvement, of
(A) a physician acting in the course of the practise of medicine,
(B) a midwife acting in the course of the practise of midwifery,
(C) if a physician is not readily accessible in the geographic area in which the process takes place, a nurse practitioner acting in the course of the practise of a nurse practitioner, or
(D) a prescribed person acting in prescribed circumstances, and
(iii) in the case of chronic care that requires the individual to stay overnight at the public hospital or qualifying facility, requires or is reasonably expected to require that
(A) a registered nurse be at the public hospital or qualifying facility at all times when the individual is at the public hospital or qualifying facility,
(B) a physician or, if a physician is not readily accessible in the geographic area in which the process takes place, a nurse practitioner, be at, or be on-call to attend at, the public hospital or qualifying facility at all times when the individual is at the public hospital or qualifying facility,
(C) throughout the process, the individual be subject to medical management and receive a range of therapeutic health care services that includes registered nursing care, and
(D) it not be the case that all or substantially all of each calendar day or part during which the individual stays at the public hospital or qualifying facility is time during which the individual does not receive therapeutic health care services referred to in clause (C), and
(b) if the supplier does not operate the public hospital or qualifying facility, an amount, other than a nominal amount, is paid or payable as medical funding to the supplier.

A "physician" is defined in subsection 259(1) of the ETA as a person who is entitled under the laws of a province to practise the profession of medicine.

The definition of "facility supply" in subsection 259(1) is to be applied on a supply-by-supply basis. In order for a particular supply to be a "facility supply" as defined in subsection 259(1), the supply must first be an exempt supply (other than a prescribed supply). Exempt supplies are found in Schedule V to the ETA.

Section 2 of Part VI of Schedule V exempts a supply of personal property or a service made by a public institution, unless the supply is specifically excluded under paragraphs (a) to (p) of that section. Given that [Corporation A] is a public institution, section 2 of Part VI would generally exempt supplies of personal property or services made by [Corporation A].

Section 2 of Part II of Schedule V may also apply to exempt certain supplies of property or services made by [Corporation A]. Section 2, as it read during the period [...], applied to a supply of an institutional health care service made by the operator of a health care facility if the service was rendered to a patient or resident of the facility, but not including a supply of property or a service that was made for cosmetic purposes and not for medical or reconstructive purposes. The terms "institutional health care service" and "health care facility" are defined in section 1 of Part II of Schedule V.

Paragraph (a), subparagraphs (a)(i) and (a)(ii) and clause (a)(ii)(A) of the definition of "facility supply" in subsection 259(1) further require that the exempt supply of property be made available, or the exempt supply of a service be rendered, at a public hospital or qualifying facility and be part of a medically necessary process of health care for an individual. This process must be undertaken in whole or in part at the public hospital or qualifying facility and reasonably be expected to take place under the active direction or supervision, or with the active involvement, of a physician acting in the course of practise of medicine (or in certain circumstances, a midwife, a nurse practitioner or a prescribed person in prescribed circumstances).

In circumstances where chronic care requires the individual to stay overnight at the public hospital or qualifying facility, the definition of "facility supply" in subsection 259(1) provides that the process must require, or reasonably be expected to require, the additional elements referred to in clauses (a)(iii)(A) to (D) of the definition of "facility supply". That is, a registered nurse must be at the public hospital or qualifying facility at all times when the individual is there; a physician or, if a physician is not readily accessible in the geographic area in which the process takes place, a nurse practitioner, must be at, or be on-call to attend at, the public hospital or qualifying facility at all times when the individual is there; the individual must be subject to medical management and receive a range of therapeutic health care services that include registered nursing care, for at least 10% of each day while the individual is at the public hospital or qualifying facility.

A supply that does not meet all of the above requirements is not a facility supply for purposes of section 259.

Part of a medically necessary process of health care for an individual

The ETA does not define the term "process"; therefore, we can consider the common or ordinary meaning of the term, keeping in mind the context in which it appears. In general terms, a process is a series of actions, operations or events that are undertaken in order to achieve a particular result or that are conducing to an end. A process may take place over a short period of time (as would typically be the case with a specific treatment or health care procedure) or, alternatively, a process may encompass an ongoing series of actions, operations or events that take place over a significant period of time. For purposes of the definition of "facility supply" in subsection 259(1), the expression "medically necessary process" generally refers to the series of medically necessary actions, operations or events that are undertaken for the purpose of maintaining health, preventing disease, diagnosing or treating an injury, illness or disability or providing palliative health care.

In the context of a long-term care facility, the "medically necessary process of health care" will generally be the series of actions, operations or events that:

• are in respect of a particular resident at the long-term care facility;
• have been determined to be medically necessary by a physician acting in the course of the practise of medicine; and
• are undertaken for the purpose of maintaining health, preventing disease, diagnosing or treating an injury, illness or disability or providing palliative health care.

The medically necessary process of health care for a particular resident of a long-term care facility may be identified with reference to a care plan, progress notes, or similar records maintained by a physician who attends to the resident at the facility.

In addition to the requirement that an exempt supply be part of a medically necessary process of health care, in order for a particular supply to qualify as a facility supply, the medically necessary process of health care must be reasonably expected to take place under the active direction or supervision, or with the active involvement, of a physician acting in the course of the practise of medicine (or, in certain circumstances, a midwife, a nurse practitioner or a prescribed person in prescribed circumstances).

Active direction or supervision, or with the active involvement, of a physician
The term "active" is not defined in the ETA, nor is the phrase "active direction or supervision, or with the active involvement, of a physician". The meaning of the phrase "active direction or supervision, or with the active involvement, of a physician" can be ascertained by considering the grammatical and ordinary meaning of the term "active" in the context in which it appears, and by considering the legislative purpose of the definition of "facility supply", as expressed by the Department of Finance.

With respect to the phrase "active direction or supervision, or with the active involvement, of a physician", [the Firm] suggests in its Technical Analysis that [...] and refers to [...].

Presumably, this is a reference to the modern principle of statutory interpretation (also known as the modern approach or modern rule), initially described by Elmer Driedger in The Construction of Statutes, First Edition as follows:

To-day there is only one principle or approach, namely, the words of an Act are to be read in their entire context in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act and the intention of Parliament.

The modern principle is supported by numerous Supreme Court of Canada (SCC) decisions, including Canada Trustco Mortgage Co. v. Canada , Placer Dome Canada Ltd. v. Ontario (Minister of Finance) and Lipson v. Canada . In Canada Trustco Mortgage Co., after acknowledging the modern principle, McLachlin C.J. adds at para. 10 and 11 that:

The interpretation of a statutory provision must be made according to a textual, contextual and purposive analysis to find a meaning that is harmonious with the Act as a whole. When the words of a provision are precise and unequivocal, the ordinary meaning of the words play a dominant role in the interpretative process. On the other hand, where the words can support more than one reasonable meaning, the ordinary meaning of the words plays a lesser role
...

There is no doubt today that all statutes [...] must be interpreted in a textual, contextual and purposive way.

At para. 47 of Canada Trustco Mortgage Co., McLachlin C.J. quotes P.W. Hogg and J.E. Magee, Principles of Canadian Income Tax Law (4th ed. 2002):

After all, language can never be interpreted independently of its context, and legislative purpose is part of the context. It would seem to follow that consideration of legislative purpose may not only resolve patent ambiguity, but may, on occasion, reveal ambiguity in apparently plain language.

Similarly, in Placer Dome Canada Ltd., the SCC elaborates on the application of the modern principle when, after suggesting that it applies to taxation statutes no less than it does to other statutes, Lebel J. states (referring to Canada Trustco Mortgage Co.):

[B]ecause of the degree of precision and detail characteristic of many tax provisions, a greater emphasis has often been placed on textual interpretation where taxation statutes are concerned
...

Where the words of a statute are precise and unequivocal, those words will play a dominant role in the interpretive process.

On the other hand, where the words of a statute give rise to more than one reasonable interpretation, the ordinary meaning of words will play a lesser role, and greater recourse to the context and purpose of the Act may be necessary
...

[E]ven where the meaning of particular provisions may not appear to be ambiguous at first glance, statutory context and purpose may reveal or resolve latent ambiguities.

The application of a textual, contextual and purposive approach to statutory interpretation, as described in Canada Trustco Mortgage Co. and Placer Dome Canada Ltd., is further supported by Lipson v. Canada, in which the SCC states:

In determining the purpose of the relevant provision(s) of the Act, a court must take a unified textual, contextual and purposive approach to statutory interpretation...This approach is, of course, not unique to the GAAR... the approach to statutory interpretation is the same for provisions of the ITA as for those of any other statute: it is necessary "to determine the intention of the legislator by considering the text, context and purpose of the provisions at issue".

In our view, the meaning of the phrase "active direction or supervision, or with the active involvement, of a physician" can be ascertained by considering the grammatical or ordinary sense of the term "active" in the context of the provision in which it appears, while also considering the intent of the legislation.

Given that the term "active" is not defined by the legislation, we can consider the ordinary meaning of the term, keeping in mind the context in which it appears. One way to establish the common or ordinary meaning of a particular term is to consider the dictionary definition of the term. In that regard, the following dictionary definitions were reviewed:

• The Concise Oxford Dictionary, 9th Edition
consisting in or marked by action; energetic; diligent
• Dorland's Medical Dictionary, 30th Edition
characterized by action; not passive; not expectant.

• Merriam-Webster Online Dictionary
characterized by action rather than by contemplation or speculation
quick in physical movement: lively
marked by vigorous activity: busy
• Cambridge Online Dictionary
active (busy/involved)
busy with or ready to perform a particular activity
physically/mentally active

She's very active in (= involved in) local politics.

The dictionary definitions above suggest that the term "active" is generally understood to describe something that is characterized by action or marked by activity. When looked upon collectively, synonyms of the term "active", which include "busy", "involved", "lively" and "vigorous", exemplify what may be considered an ordinary meaning of the term. It follows that a facility supply must be part of a process that is reasonably expected to take place under direction or supervision, or with involvement, that is characterized by the action, or marked by the activity, of a physician. The direction, supervision or involvement of the physician must not be passive or inactive, and must be such that it may reasonably be described by the synonyms busy, involved, lively or vigorous, when these synonyms are considered in their cognate sense.

An analysis of the grammatical and ordinary meaning of the term "active" as it appears in the phrase "active direction or supervision, or with the active involvement, of a physician" must also consider the presumption against tautology, which is described in Sullivan on the Construction of Statutes, Fifth Edition (Sullivan) as follows:

It is presumed that the legislature avoids superfluous or meaningless words, that it does not pointlessly repeat itself or speak in vain. Every word in a statute is presumed to make sense and to have a specific role to play in advancing the legislative purpose.

...

[E]very word and provision found in a statute is supposed to have a meaning and a function. For this reason courts should avoid, as much as possible, adopting interpretations that would render any portion of a statute meaningless or pointless or redundant.

In accordance with the presumption against tautology, the phrase "active direction or supervision, or with the active involvement, of a physician" must be interpreted such that the term "active" has a significant and effective meaning that serves to advance the legislative purpose of the provision. Likewise, the meaning assigned to the term "active" must effectively cause the phrase "under the active direction or supervision, or with the active involvement, of a physician" to contemplate a scenario that is beyond, or, in this case, is more restrictive than, a scenario that would be contemplated by the phrase if the term "active" were absent.

The term "active" is used in the definition of "facility supply" in subsection 259(1) in order to advance a legislative purpose that is expressed, in part, through the requirement that in order for a facility supply to exist, there must be a medically necessary process of health care that is not merely under the direction or supervision, or with the involvement, of a physician, but rather is under the "active direction or supervision", or with the "active involvement", of a physician. In that regard, a number of Department of Finance documents pertaining to the definition of "facility supply" in subsection 259(1) were consulted.

In the 2003 Federal Budget document, 2003 Budget Plan, the Department of Finance announced its intent to review the GST/HST rebate available for health care:

In recent years the restructuring of health care delivery has resulted in some services formerly provided in hospitals being performed in other non-profit institutions, which are entitled to the lesser rebate of GST/HST. The Department of Finance is undertaking discussions with the provinces and territories to assess and improve the current application of the health care rebate with respect to health care functions that are moved outside of hospitals.

The Department of Finance introduced the expansion of the 83% rebate in the 2005 Federal Budget document, 2005 Budget Plan Annex 8 Tax Measures: Supplementary Information:

Further to extensive consultations with provincial and territorial health and finance authorities, the budget proposes to extend, effective January 1, 2005, the application of the 83-per-cent rebate to eligible charities and non-profit organizations that provide health care services similar to those traditionally performed in hospitals.

The statements made by the Department of Finance in the 2003 and 2005 Federal Budget documents indicate that the expansion of the 83% PSB rebate was intended to apply to qualifying facilities and entities that provide a high level of care similar to that which has traditionally been provided in hospitals. It is our understanding that it was not the intent of the Department of Finance to make the 83% PSB rebate available to nursing homes and similar long-term care operations that do not make supplies of health care services similar to those traditionally provided in hospitals. This intent is effectively expressed in the legislation through the use of the term "active" in the phrase "active direction or supervision, or with the active involvement, of a physician", as well as the other requirements of the definition of "facility supply" in subsection 259(1).

Accordingly, the 83% PSB rebate is limited to facilities where physicians are actively involved in the medically necessary process of health care by diagnosing and treating injuries, illnesses, or disabilities. These types of facilities include, for example, those that offer a high level of therapeutic care, cancer clinics, day surgery clinics and community health centres that render primary care services.

In the Technical Analysis, [the Firm] refers to the ordinary meaning of the term "active": [...]

The Technical Analysis does not elaborate on what is meant by the expression "causing change" or the phrase "that causes change". It is not clear how the term "change" is to be interpreted in this context. The expression "causing change" and the phrase "that causes change" suggest that it is necessary to consider the extent to which the direction, supervision or involvement can be said to result in some sort of change. This 'results-based' or 'output-based' interpretation of the term "active" and the phrase "active direction or supervision, or with the active involvement, of a physician" does not appear to be supported by the legislation.

It has also been suggested that the term "active" can be defined based on the number of visits to a particular facility by a physician (i.e., a test based on the frequency of physician visits). In the context of a long-term care facility, such a quantitative approach may provide an indication as to whether the direction, supervision or involvement of a physician could, potentially, be described as "active"; however, an approach of this type is by no means conclusive. The approach must also consider the nature of the visits and the level of care required by, and provided to, the individual who is subject to the visits.

[Corporation A] and [The Facility]

[Corporation A/The Facility] is an approved charitable institution operating an approved charitable home for the aged under the Charitable Institutions Act and its accompanying regulations.

Regulation 69 made pursuant to the Charitable Institutions Act sets out the rules governing the operations (e.g., resident admission eligibility; resident payment; qualifications, powers and duties of staff) and funding (e.g., subsidy calculations) of an approved charitable institution that is an approved charitable home for the aged.

Among other things, Regulation 69 requires an approved corporation maintaining and operating a charitable institution to appoint a physician for the institution to ensure that medical services are provided to each resident of the institution in accordance with their needs. Further, it provides that a resident, or the person who is lawfully authorized to make a decision on behalf of the resident concerning the resident's personal care, may retain an attending physician to attend the resident and provide the resident with medical care. The physician for the charitable institution is required to attend and prescribe medication or treatment for any resident who has no attending physician of his or her own or who requests that the services of the physician for the institution be made available to him or her.

At least once a year, the physician for the charitable institution, the attending physician or a registered nurse in the extended class must give each resident of the institution a complete physical examination (section 15). It also requires that a written plan of care be developed for each resident that, among others, reflects the resident's preferences and goals and describes clearly the care to be given to the resident including, the treatments, medication and diet, the assistance to be given to the resident with activities of daily living, and the safety and security precautions to be taken with respect to the resident (section 57).

The policies of the Ontario Ministry of Health and Long Term Care (MOHLTC), as described in the Long-Term Care Homes Program Manual (Manual), last revised in November 2007, apply to all long-term care homes operating in the Province of Ontario. As a home for the aged, [the Facility] is required to abide with the policies, procedures, standards and safeguards described in this Manual.

Tab 1012-01 requires an attending physician to assess, plan, implement and evaluate the residents' medical care and participate in the interdisciplinary approach to care. Tab 1012-02 of the Manual requires that a medical director be appointed by the administrator of a long-term care home and where a resident does not have their own physician, an attending physician must be appointed to them on the advice of the medical director. A "medical director" is defined as "a physician who provides the clinical and administrative direction for the medical services of the facility. The medical director may also be the attending physician". Residents' medical care is described in Tab 1012-02 Manual as, but is not limited to, the following:

• Admission and annual assessment
• TB surveillance
• Writing medical orders
• Medication reviews
• Medical charting and documentation
• Providing/arranging for 24-hour medical coverage
• Clinical care (e.g., maintenance of skin integrity; management of falls, incontinence)
The nursing and personal care services provided to residents of a long-term care facility are described in Tab 0801-01 of the Manual and are included in the charge for basic accommodation, as described in Tab 0608-01.

Information under the heading "Medical Care" in Tab 0608-01 indicates that residents of a long-term care facility may continue to have their personal physicians take care of them. Where a resident does not have a personal physician, Regulation 69 requires an approved charitable home for the aged to appoint a physician to attend and prescribe medication or treatment for the resident. Tab 0903-01 provides that each resident's plan shall be reviewed, at least quarterly, and where necessary revised, by the physician, nursing staff, the dietician or food service supervisor or other care team members as appropriate.

The physician involvement at [the Facility] is consistent with the requirements imposed on [Corporation A] by the Charitable Institutions Act and the Manual.

In the Technical Analysis, [the Firm] submits that the physicians at [the Facility] provide the following "active direction":

• Examining patients and establishing a care plan for each resident, to be implemented by a team of health care providers;
• Monitoring the health care of each resident;
• Requisitioning medical orders and directing medical interventions and treatments;
• Ordering changes in medications;
• Requesting diagnostic tests; and
• Deciding on transfer of residents to other care facilities.

[The Firm] also submits that the physicians at [the Facility] provide the following "active supervision":

• Reviewing the "Doctor's Book" that contains resident issues and discussing issues with the health care team;
• Discussing resident issues with nursing staff on a continuous basis;
• Reviewing each resident's care plan;
• Evaluating physical and psychological assessments;
• Responding to medical concerns identified by the health care team; and
• Reviewing and signing verbal orders/directions and laboratory results.

With respect to the physician involvement, [the Firm] suggests that the "active direction" and "active supervision" discussed above indicates that the physician is "actively involved". [The Firm] goes on to suggest that there is further support that there is "active involvement" of a physician based on the fact that physicians are required to:

• Be available at all times;
• Meet with residents on a weekly basis, or on a more frequent or as-needed basis;
• Document each consultation and review resident progress notes during each shift;
• Participate in family conferences regarding the care of each resident;
• Participate in geriatric training;
• Conduct physical assessments and determine treatment based on the assessment;
• Monitor and review resident diagnoses; and
• Conduct mortality reviews.

Further, in a letter dated [mm/dd/yyyy], [the Firm] suggests that all residents experience a number of health care diagnoses that must be monitored and treated by a physician on a regular and continuous basis. According to [the Firm], the extent of treatment is reflected in the number of physician orders and in the details provided in the [...] [Documents 1] and the [...] [Documents 2]. A small sample of Notes [Documents 1] and [Documents 2] were submitted for review. In the [mm/dd/yyyy] letter, [the Firm] indicates that the samples provided demonstrate that the residents experience multiple health care issues that require different medical interventions.

The [Documents 1] are essentially a record of a physician's weekly scheduled visits (medical rounds) and, where applicable, any additional visits made by a physician. In many instances, the [Documents 2] for a particular visit consist of a brief statement about the resident's condition at the time of the visit (i.e., resident is "stable", "content", "quiet", "sleeping" or "agitated").

The [Documents 2] that were submitted contain notes, made by the nursing or support staff, about the resident's sleep habits, nutrition, mood, and similar resident issues. The

[Documents 2] also document certain interactions between the nursing or support staff and the residents as well as any concerns the nursing or support staff have about the residents. According to [the Firm], the [Documents 2] are reviewed by a physician.

A copy of the Agreement between [the Facility] and the Medical Director was also provided for our review. Pursuant to the Agreement, the Medical Director is essentially responsible to ensure that the health care services are provided to residents of [the Facility] as set out in the Charitable Institutions Act, the Manual, and any pertinent policies of the MOHLTC, [Corporation A] and [the Facility]. The Medical Director is also responsible for making sure there are planned and systematic procedures for monitoring, reporting, and responding to the health care needs of residents and evaluating such procedures to continually improve the quality of medical care and services provided. The services provided by the Medical Director at [the Facility] are described in the Agreement as "medical administrative services".

In addition to the documents mentioned above, a sample of the following records was reviewed in order to determine the extent of the direction or supervision, or involvement, of a physician at [the Facility] (italics are our notes):

• Quarterly [...]
BLOCKQUOTE>o A review of a resident's medication on a quarterly basis
• Requests for laboratory tests (urinalysis) and referrals to practitioners (physiotherapy)
• On an as-needed basis
• Nutritional Intake Record
• A record of a resident's daily nutritional intake (i.e., what they eat and drink)
• Maintained by the nursing or personal support staff
• Head Injury Assessment record
• A form to monitor certain vital statistics after a head injury
• Restraint Form
• Where applicable, restraints are checked hourly by the nursing or support staff
• Treatment Sheet
• Nursing or support staff note certain treatments
• In this case the treatment was to cleanse and apply cream
• 'Documentation Record' for dressing, toileting, eating, transferring, personal hygiene, dentition/oral, bladder/continence, bowel continence, aids to daily living, sleep and rest, vision, hearing, safety devices/restraints
• Prepared by nursing or support staff who attend to a resident on a daily basis
• A checklist for household and personal care or activities of daily living
• [...]

• A summary of the nursing care a resident is receiving, including the items listed above under 'Documentation Record' for...

• Miscellaneous documentation related to medication / controlled drugs / etc.

We note that the documentation submitted by [the Firm] was appropriately sanitized such that any information that could identify a resident was removed.

Based on the information provided by [the Firm], as well as the requirements set out in the Charitable Institutions Act and the Manual, it is evident that physicians are involved in the health care of the residents at [the Facility]. However, the information provided does not demonstrate that the level of physician involvement is provided to the same extent as would traditionally be found in a hospital setting, as contemplated by the phrase "under the active direction or supervision, or with the active involvement, of a physician" in subparagraph (a)(ii) of the definition of "facility supply".

In order to conclude that a particular supply is a facility supply, it is not sufficient that there be some active direction or supervision, or some active involvement, of a physician in a medically necessary process of which that supply is a part; rather, we must be able to conclude that, when looked upon in its entirety, it is reasonably expected that a medically necessary process of health care takes place under the active direction or supervision, or with the active involvement, of a physician. Further, with respect to a medically necessary process of health care that is purported to take place under the active direction or supervision, or with the active involvement, of a physician, one would expect that the physician's role in the process would be readily identifiable, even self-evident, and not merely passive or incidental to the process.

In the context of an exempt supply made by [Corporation A] at [the Facility], we can consider a medically necessary process of health care for a particular resident to encompass the medically necessary actions, operations or events that are undertaken for the purpose of maintaining the resident's health, preventing disease, diagnosing or treating an injury, illness or disability or providing palliative health care to the resident. This medically necessary process is undertaken in accordance with the Charitable Institutions Act, the Manual and the policies in place at [the Facility], and is reflected in the documentation provided by [the Firm], as described above.

It is our position that the medically necessary process of health care for residents at [the Facility], when looked upon in its entirety, does not take place under physician direction or supervision, or with physician involvement, that is "active" when the meaning of that term is ascertained by considering the grammatical and ordinary meaning of the term "active" in the context in which it appears, and by considering the legislative purpose of the definition of "facility supply", as discussed above.

A review of the information provided indicates that, generally speaking, the physicians at [the Facility] visit the residents according to a predetermined schedule to perform routine observations and basic 'check-ups', and to (again, generally speaking) review the records maintained by the nursing and support staff at [the Facility]. In certain circumstances they may visit on an as-needed basis; however, as illustrated by the [Documents 2], this does not appear to be the norm. In that regard, administrative or managerial services supplied to [the Facility]by a physician acting in the capacity as Medical Director do not demonstrate the existence of a facility supply as these services are not in respect of a medically necessary process of health care for a particular individual.

The vast majority of health care services provided at [the Facility] are rendered by the nursing and support staff, with minimal instruction, management or supervision by a physician. The items listed in the Technical Analysis as evidence that the health care provided at [the Facility] is under the "active direction", "active supervision" or "active involvement" of a physician do not sufficiently demonstrate that the "active direction or supervision, or with the active involvement, of a physician" criteria is met. The health care needs of the residents of [the Facility] are not such that they require the active direction, supervision or involvement of a physician and, accordingly, such involvement has not been demonstrated.

Based on the information provided, the direction, supervision or involvement of the physicians at [the Facility] is not 'characterized by action' or 'marked by activity' as contemplated by the use of the term "active" in the phrase "active direction or supervision, or with the active involvement, of a physician". Similarly, the physician direction, supervision, or involvement would not be described by the synonyms of the term "active" (eg., busy, involved, lively, vigorous) when these synonyms are considered collectively.

That said, in accordance with a textual, contextual and purposive approach to interpreting the term "active" in the context of the phrase "active direction or supervision, or with the active involvement, of a physician", it can be argued that the grammatical or ordinary meaning of the term "active" will play a lesser role, and a greater emphasis can be placed upon the context and the purpose of the legislation.

The level of care provided at [the Facility] is akin to that which is traditionally provided in a nursing home or similar long-term care facility. While it is acknowledged that the level of care required by an elderly individual who resides in a nursing home, such as [the Facility], is likely higher than that of an elderly individual living in their own home in the community, there is nothing in the information provided by [the Firm] to suggest that the extent of the physician direction, supervision or involvement is similar to that which is found in a hospital setting. As noted above, it was not the intent of the Department of Finance to extend the application of the 83% PSB rebate to all facilities providing health care services, but rather, only to those facilities that provide health care similar to that traditionally provided in hospitals.

If we were to accept the conclusion that [the Firm] has suggested, namely, that "supplies made by [the Facility] are under the "active direction, supervision, or involvement" of a physician" , it would result in an interpretation of the phrase "under the active direction or supervision, or with the active involvement, of a physician" that renders the term "active" as superfluous or insignificant (and therefore violates the principle against tautology), and is contrary to the purpose of the legislative provisions that extend the application of the 83% PSB rebate.

To summarize, any exempt supplies that [Corporation A] may make as part of a medically necessary process of health care for a resident of [the Facility] are not reasonably expected to take place under the active direction or supervision, or with the active involvement, of a physician; therefore, subparagraph (a)(ii) of the definition of "facility supply" is not met. Consequently, [the Facility] is not a "qualifying facility" as defined in subsection 259(2.1).

Given that [Corporation A] does not make facility supplies at [the Facility] and, therefore, does not meet the requirements of paragraph 259(2.1)(a), the other requirements of subsection 259(2.1) have not been considered.

Making facility supplies, ancillary supplies or home medical supplies
An 83% PSB rebate is also available to a hospital authority to the extent that it makes facility supplies, ancillary supplies or home medical supplies. The definition of "facility supply" was considered above as part of our analysis of the term "qualifying facility". The terms "ancillary supply" and "home medical supply" are defined in subsection 259(1).

Pursuant to subsection 259(1) an "ancillary supply" means
(a) an exempt supply of a service of organizing or coordinating the making of facility supplies or home medical supplies in respect of which supply an amount, other than a nominal amount, is paid or payable to the supplier as medical funding, or
(b) the portion of an exempt supply (other than a facility supply, a home medical supply or a prescribed supply) of property or a service (other than a financial service) that represents the extent of the property or service that is, or is reasonably expected to be, consumed or used for making a facility supply and in respect of which portion an amount, other than a nominal amount, is paid or payable to the supplier as medical funding.

Subsection 259(1) defines a "home medical supply" to mean an exempt supply (other than a facility supply or a prescribed supply) of property or a service
(a) that is made
(i) as part of a medically necessary process of health care for an individual for the purpose of maintaining health, preventing disease or diagnosing or treating an injury, illness or disability, or for the purpose of palliative health care, and
(ii) after a physician acting in the course of the practise of medicine, or a prescribed person acting in prescribed circumstances, has identified or confirmed that it is appropriate for the process to take place at the individual's place of residence or lodging (other than a public hospital or a qualifying facility),
(b) in respect of which the property or service supplied is made available or rendered to the individual at the individual's place of residence or lodging (other than a public hospital or a qualifying facility), on the authorization of a person who is responsible for coordinating the process and under circumstances in which it is reasonable to expect that the person will carry out that responsibility in consultation with, or with ongoing reference to instructions for the process given by, a physician acting in the course of the practise of medicine, or a prescribed person acting in prescribed circumstances,
(c) in respect of which substantially all of the property or services included in the supply are other than meals, accommodation, domestic services of an ordinary household nature, assistance with the activities of daily living and social, recreational and other related services to meet the psycho-social needs of the individual, and
(d) in respect of which an amount, other than a nominal amount, is paid or payable as medical funding to the supplier in respect of the supply.

There is no indication in the facts presented above that [Corporation A] is making facility supplies through another supplier's facility, or ancillary supplies or home medical supplies; therefore, we have not considered its eligibility for an 83% PSB rebate in respect of these supplies.

In summary, with respect to its operation of [the Facility], [Corporation A] is not a hospital authority operating a public hospital or qualifying facility for use in making facility supplies. Accordingly, [Corporation A] does not qualify for an 83% PSB rebate for non-creditable tax charged in respect of its operation of [the Facility].

However, as a public institution, [Corporation A] is entitled to claim the 50% rebate of the GST and the federal part of the HST and, effective July 1, 2010, [Corporation A], as a public institution resident in Ontario, may also be entitled to an 82% PSB rebate of the provincial part of the HST with respect to its operation of [the Facility], subject to the rules for that particular rebate.

If you require clarification with respect to any of the issues discussed in this memorandum, please call me at 613-954-4289.

Yours truly,
Brian Olsen, CGA
Municipalities and Health Care Services Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate

UNCLASSIFIED