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.
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Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5XXXXX
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Case Number: 45433File Number: 11865-17, 11870-4, 11870-5, 11885-3, 11950-1December 21, 2005
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Subject:
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GST/HST APPLICATION RULING
New Residential Rental Property Rebate and the XXXXX
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Dear XXXXX:
Thank you for your letter XXXXX, with attachments, in response to our letter XXXXX. Our letter was in response to your original ruling request XXXXX. The ruling request concerns the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the transactions described below. We apologize for the delay in providing you with our response.
All legislative references are to the Excise Tax Act (hereafter "the ETA") unless otherwise noted.
Statement of Facts
Our understanding of the facts and transactions is as follows:
Background
1. XXXXX "the Corporation" is an incorporated for profit company that has constructed and operates a new long-term care facility in XXXXX. The long-term care facility (hereafter "the Facility") is licensed by XXXXX [(]"the Ministry"), XXXXX [(]"the Province") under XXXXX [(]"the Act"). The Corporation is licensed under the Act to operate the Facility as a "nursing home" [i]footnote 1.
2. The Corporation registered for the GST/HST in XXXXX and, shortly thereafter, acquired vacant land with the intention of building the Facility. The Corporation engaged contractors to construct the Facility.
3. The Corporation paid tax on the acquisition of the land that forms part of the Facility and self-assessed the GST on the Corporation's GST/HST return for the reporting period in which tax on the acquisition of the land became payable. The Corporation also paid GST on the various contractors' supplies mentioned in the previous paragraph and claimed input tax credits on that tax payable.
Legislative Context
4. The Act and Regulation XXXXX thereto (hereafter, "the Regulation") provide the legislative and regulatory requirements under which the licensee of a nursing home is required to operate. Pursuant to XXXXX the Act, no licensee is permitted to operate a nursing home unless the licensee is party to a service agreement (hereafter "the Service Agreement") [ii]footnote 2) with the Ministry and the Service Agreement complies with the Act and the Regulation.
5. XXXXX the Act states:
XXXXX.
Nursing Home Admittance Requirements and the Application Process
6. Pursuant to XXXXX the Regulation, an individual will be eligible for admission to a nursing home only if they meet all the conditions identified therein ([iii]footnote 3)
7. An individual wishing to live at a nursing home must apply for authorization to do so. A XXXXX reviews the application and determines the individual's eligibility for admission. A nursing home licensed under the Act is not permitted to admit individuals who have not met the eligibility criteria or who have not successfully applied for admittance to a nursing home through a XXXXX.
8. The determination as to whether the eligibility criteria are met involves an assessment of an individual made by a health care practitioner relating to the individual's impairment or incapacity and/or assessment or information relating to the individual's requirements for medical treatment, health care or other personal care.
9. Once an individual is approved for admission to a nursing home by a XXXXX, the individual's name will generally be placed on a waiting list that is maintained by the XXXXX. The XXXXX will advise the individual of the available nursing homes appropriate to their needs and the individual's application is forwarded to those homes at which the individual is prepared to live. The decision on whether to accept the individual for residency at a nursing home is made by the nursing home operator. Once the operator accepts the individual's application, the individual moves into the nursing home, or if the home is already fully occupied, the individual's name is added to the home's waiting list, which is maintained by the XXXXX.
10. Admissions occur by priority and chronological order. If the individual's condition deteriorates while waiting for his or her preferred nursing home or if he or she requires immediate admission, the individual may be required to accept a temporary bed in a home other than the one he or she has chosen. The XXXXX will advise the individual when an appropriate bed becomes available in one of the individual's chosen nursing homes, and when the bed offer is made, the individual has a limited time in which to accept the offer.
Ministry Requirements for Nursing Homes
11. A resident of a nursing home is entitled, under the Act, the Regulation and the provisions of the Service Agreement and the Long-Term Care Facility Program Manual [iv]footnote 4 (hereafter "the Program Manual", which is mentioned in XXXXX the Service Agreement), to receive certain property and services. The Program Manual XXXXX provides a list of basic services that a resident of a nursing home can expect to receive in respect of the payment the resident is required to make (the payment a resident is required to make is discussed below).
12. The Program Manual also contains the following provisions:
(a) XXXXX;
(b) XXXXX;
(c) XXXXX; and
(d) XXXXX.
13. Residents of a nursing home are generally in varying needs of assistance with the activities of daily living, e.g., bathing, dressing, and personal hygiene. XXXXX the Act requires the licensee of a nursing home to develop a personalized plan of care that meets each individual resident's requirements. That XXXXX also requires that the plan of care be revised as necessary when the individual's requirements change and that such requirements are assessed on an ongoing basis. Pursuant to XXXXX the Regulation, the personalized plan of care must, among other things, reflect the individual's preferences and goals and clearly describe the care to be given to the individual including the treatments, diet and medications to be given, the assistance with the activities of daily living to be provided and the safety and security precautions to be taken with respect to the individual.
14. The Regulation also addresses issues relating to the management and operation of nursing homes as well as officers and staff of nursing homes, records and accounts, posting of documents, nursing home licences and the treatment, care, conduct, discipline and discharge of residents. For example, nursing homes are required to appoint a physician as a medical director for the home to advise the administrator on medical care matters and where the licensee of the home is an individual, that physician cannot be the licensee. Every nursing home administrator must make arrangements for a physician to be on call to provide emergency services when a resident's physician is not available.
15. The operator of a nursing home must ensure that 24-hour nursing service is available in the home. A registered nurse must be designated as the director of nurses and be responsible for the organization, direction and evaluation of nursing care, directing the work of nursing staff, and organizing and directing in-service training programs for nursing staff.
16. Nursing stations must be on each floor of a nursing home.
17. Where required by a resident's physician, registered nursing staff must regularly observe and record the resident's vital signs and report the information to the physician.
18. Nursing staff must provide restorative care, bladder or bowel training, gait training, care of weak or paralysed limbs and maintenance of a range of joint movements to those residents requiring such care. For residents confined to a bed, nursing staff provide care that includes turning every two hours, positioning and measures to prevent skin disorders or care for skin disorders. Nurses instruct residents in the use of self-care devices, and ensure that proper and sufficient care of each resident's body is provided daily to safeguard the resident's health and maintain personal hygiene.
19. There must be sufficient registered nurses, registered practical nurses, and health care aides on duty in the nursing home at all times to provide the nursing care required by the residents, and only a physician, dentist, registered nurse or registered practical nurse may administer drugs to a resident. The labelling, storage, ordering, destruction and removal of drugs are strictly controlled. Residents are not permitted to keep drugs in their room unless authorized by a physician or extended class registered nurse who is in attendance for the resident, and every nursing home must maintain a "drug record book" to record specific information about the resident's drugs.
20. The list of procedures and services to be provided at a nursing home as part of the nursing and personal care services are extensive. For example, Program Manual XXXXX lists numerous procedures and services a nursing home operator is to provide.
Funding
21. XXXXX the Act is the basic funding authority that requires the Province to pay a licensee for the operation of a nursing home. That XXXXX provides that the Ministry shall make payments out of money appropriated by the legislature, to a licensee of a nursing home, to assist in defraying the maintenance and operating costs incurred or to be incurred by the licensee in providing accommodation, care, services, programs and goods to residents of the nursing home. The Ministry funds long-term care facilities under a resident needs based funding system. An annual funding entitlement for each facility (referred to in the Program Manual and hereafter, as "the operating subsidy" is determined through a resident classification process that is completed each year by the Ministry.
22. XXXXX the Regulation provides that the operating subsidy to a licensee in respect of a nursing home is to be determined in accordance with the subsidy calculation worksheet (which we understand to be the "Long-Term Care Facility Subsidy Calculation Worksheet"), semi-annual reports, year end reports, and auditor's reports, all as set out in the Regulation.
23. XXXXX the Service Agreement provides that the Ministry will provide the operating subsidy for the operation of a nursing home, specifically, for the Services provided by the licensee as stipulated in various funding "envelopes" (discussed below).
24. The Ministry may also pay an amount to a licensee to cover property taxes in respect of the nursing home. XXXXX the Act provides that the Ministry may make a grant to a licensee to assist in defraying costs as a result of an extraordinary event (such events are prescribed by regulation).
25. XXXXX the Act provides that a resident of a nursing home is responsible for those amounts demanded by a licensee for accommodation, which includes certain property and services, in accordance with XXXXX the Act. That XXXXX provides that the maximum amount payable by a resident for accommodation is as set out in the Regulation and is therefore established by the Ministry. However, no charges to residents are permitted for provincially funded nursing and personal care services, programming and support services, meals, and housekeeping and maintenance services. Further, there is no relationship between the care received and the amount paid by a resident for accommodations. We also note that XXXXX the Regulation allows a resident to apply to a nursing home licensee for a reduction in the fee payable for basic accommodations and that if they do so, the maximum amount that can be demanded by the licensee will be as determined under that XXXXX. XXXXX the Regulation also allows a resident to apply to the Ministry for a reduction in the fee payable in respect of basic accommodation. The Program Manual XXXXX provides that an income test will be used to determine ability to pay for those who cannot afford the basic accommodation rate. Further, the Ministry will fund the subsidy required by residents eligible for the rate reduction.
26. The Regulation indicates the maximum amount a nursing home licensee can charge a long-term resident in respect of the various types of accommodations. For a recent period, the amounts were as follows:
(a) Basic accommodation [v]footnote 5 - $XXXXX per month,
(b) Semi-private accommodation [vi]footnote 6 - $XXXXX per month, and
(c) Private accommodation [vii]footnote 7 - $XXXXX per month.
27. The Ministry provides the operating subsidy based on the per diem rate for four funding "envelopes". The Ministry's funding envelopes are as follows:
(a) the "Nursing and Personal Care" envelope;
The nursing and personal care envelope is per diem based and varies each year depending on the level of care of residents in a particular nursing home. We understand that the Ministry uses what it refers to as a "Case Mix Index" ("CMI") to allocate funding for nursing homes. The CMI is determined annually through a classification process that involves the review of care documentation for all XXXXX long-term care residents. The CMI is applied as a percentage to the provincial per diem for the nursing and personal care envelope. Any changes to the CMI are reflected at the beginning of April of the following year, and are combined with the provincial per diem rate increases to establish the operating subsidy for the fiscal year. The funding from the nursing and personal care envelope is used to pay the salaries and wages of the nursing and personal care staff and to purchase supplies and equipment for the services provided.
(b) the "Program and Support Services" envelope;
The programming and support services envelope is a fixed per diem rate and is used to pay the costs of recreational programs, therapies, and other resident support services, including salaries and wages of staff and related equipment and supplies.
(c) the "Raw Food" envelope; and
The raw food envelope is a fixed rate per diem and is used to pay the costs of raw food.
(d) the "Other Accommodation" envelope.
The Accommodation envelope is a fixed per diem and is used to pay costs for administrative, dietary and environmental services (laundry, housekeeping and maintenance), staff salaries and equipment and supplies.
Of the four components only the nursing and personal care per diem varies with the care requirements of the nursing home's residents. The remaining three components are set as flat rates and are determined each year by the Ministry.
28. The Ministry provides the operating subsidy throughout the year to the licensee. Our understanding is that at year-end, a reconciliation is done to produce the actual subsidy. If the licensee has spent less than the operating subsidy with respect to the services supplied with respect to the items in a particular envelope, the excess has to be returned to the Ministry (or can be deducted from the operating subsidy the Ministry provides for the subsequent fiscal year). If the estimated provincial subsidy paid for the year is less than the subsidy the licensee is entitled to, the Ministry shall provide the difference to the licensee.
Admission Contract
29. An individual who moves into the Facility (hereafter "the Resident") and the Corporation enter into an Admission Contract, a sample of which was included in your submission. The Admission Contract contains the following provisions:
(a) XXXXX.
(b) XXXXX.
(c) XXXXX.
(d) XXXXX.
(e) XXXXX.
(f) XXXXX.
Ruling Requested
You are requesting confirmation that the Corporation is eligible to claim a new residential rental property rebate (as set out in section 256.2 of the ETA) in respect of the Facility.
Ruling Given
Based on the facts set out above, we rule that the Corporation is not eligible to claim the new residential rental property rebate in respect of the Facility.
This ruling is subject to the qualifications in GST/HST Memorandum 1.4, Goods and Services Tax Rulings. We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal, that no future changes to the ETA, regulations or our interpretative policy affect its validity, and all relevant facts and transactions have been fully disclosed.
Explanation
The single/multiple supply issue
One of the conditions that must be met in order for a new residential rental property rebate to be available in this case, as set out in subparagraph 256.2(3)(a)(ii), is that the Corporation would have to be making an exempt supply of a residential unit in a residential complex by way of lease, licence or similar arrangement where those supplies are included in section 6 of Part I of Schedule V to the ETA. Further, those supplies would have to result in the Corporation being deemed to make and receive a taxable supply by way of sale of the complex under section 191.
In determining whether the Corporation is making a supply under section 6 of Part I of Schedule V, it is necessary to examine the nature of the supply. Specifically, it is necessary to consider whether the Corporation is making a single supply or multiple supplies. In that regard, policy statement P-077R2, Single and Multiple Supplies, provides assistance.
It is your opinion that the Corporation is making a supply of accommodations to Residents of the Facility and that that supply is separate from the supply of nursing, meals and personal care services that are also provided to the Residents, though funded by the Ministry. We understand that your main reason for that conclusion is that Residents are responsible for paying certain amounts while the Province funds other costs related to the operation of the Facility.
For any given transaction, an evaluation of whether a person is making a single supply or multiple supplies must consider all relevant factors. Thus a transaction must be evaluated in its totality to determine whether it is, in fact, a single supply, or whether multiple supplies exist. A determination of a single supply or multiple supplies would consider the overall context of the transaction rather than relying solely on any individual aspect of that transaction. The issue of single supply versus multiple supplies must be made on a case-by-case basis, and cannot be resolved solely by reference to the number of recipients. The relative weight to be given to each aspect of a transaction must be evaluated within the overall context of the transaction to determine whether the transaction constitutes a single supply or multiple supplies.
In our view, the context in which accommodation, meals, care and other services are rendered to Residents of the Facility demonstrate that the Corporation is making a single supply that is beyond that covered by the exemption in section 6 of Part I of Schedule V to the ETA. Accommodation is a necessary aspect of the service that the Corporation renders to Residents. That is, a person must be a resident of the facility in order to receive the various other goods and the extensive services provided by the Corporation.
It is clear from the facts provided that the purpose of being admitted to and lodged in the Facility is to receive care and services. The accommodation, care and services are interconnected where each is an integral part of a composite whole. This is supported in part by the definition of "resident" in the Admission Contract as being XXXXX, which is indicative of the fact that the individual has been admitted to the Facility as evaluated by the XXXXX in accordance with admission criteria established by the Ministry.
Pursuant to the standards and criteria for resident care listed in the Program Manual, the Corporation is required to enter into an Admission Contract that describes the accommodation, care, services, programs and goods that will be provided to a Resident and the obligation of the Resident with respect to their responsibilities and payment for service. The Resident receives all of the care and services in return for the basic fee payable by the Resident as provided in the Admission Contract and the Program Manual.
Under various provisions of the Act, the Regulation, the Service Agreement, the Admission Contract and the Program Manual, the Corporation must provide the basic care, programs and services set out therein. These basic care services are legislated under the Act and as such, it is not possible for the Corporation, at least in a nursing home scenario, to provide only accommodations to the exclusion of the other programs and services. The accommodations included in the basic care services provided by the Corporation are an integral component of an overall supply of providing care, but are nonetheless only an element of that supply. Once an individual is admitted to the Facility, that individual is entitled to receive all of the basic care, programs and services set out above. As such, based on the foregoing, we consider the Corporation to be making a single supply. That single supply is not that of simply accommodations as set out in section 6 of Part I of Schedule V, as the accommodations are not the predominant element of the supply made by the Corporation.
Therefore, because the Corporation's supply to a Resident is not a supply contemplated by section 6 of Part I of Schedule V to the ETA, one of the conditions for claiming the new residential rental property rebate is not met and a rebate eligibility does not arise.
The operating subsidy
GST/HST Technical Information Bulletin TIB B-067, Goods and Services Tax Treatment of Grants and Subsidies, sets out policy guidelines to clarify when a payment of a grant or other transfer payment may be regarded as consideration for a supply. Generally, transfer payments made by a government are not regarded as consideration for a supply unless there is a direct link between the payment and a supply received by that government or a specified third party (as stipulated by the government).
It is our view that the operating subsidy provided by the Ministry to the Corporation under the Service Agreement is a grant and not consideration for a supply. Funding received by the Corporation from the Ministry to assist in the maintenance and operation of the Facility is provided pursuant to an on-going funding program under the XXXXX Program, set up for the public purpose of subsidizing community services and institutions that include long-term care facilities in XXXXX. The statutory authority for the funding is the Act. The Ministry provides operating subsidies based on a funding formula that takes into consideration the care requirements of residents once the operator has signed a Service Agreement in respect of a facility. The Service Agreement sets out the terms for use of the operating subsidy and reporting to the province on expenditures for accountability purposes [viii]footnote 8.
The Ministry does not receive any goods or services for its funding payments and the Corporation uses the funding it receives from the Ministry for its operating activities to benefit all of the Residents of the Facility rather than any particular Resident(s). There is no direct link between the operating subsidy paid to the Corporation by the Ministry, and a supply received by the Ministry or a specified third party.
Additional Information
Self-supply
Section 191 sets out 'self-supply' rules where a builder constructs or substantially renovates a residential complex and supplies the complex by way of lease, licence or similar arrangement for the purpose of its occupancy by an individual as a place of residence. The builder is treated as having sold and repurchased the complex and is generally required to remit the GST on the fair market value of the complex. One of the conditions that must be present in order for the self-supply rule under subsection 191(3) to apply is that the builder must give possession of a unit in the complex to a person under a lease, licence or similar arrangement for the purpose of occupancy of the unit by an individual as a place of residence. In this case, we do not consider this condition to be met. Therefore, the Corporation is not treated as having sold and repurchased the Facility and is not required to account for the GST on the fair market value of the Facility.
It is generally understood that a Resident is admitted to and lodged in the Facility for reasons other than solely occupancy of a room or a bed. In the case at hand, although the Facility provides accommodation, the primary purpose for which a Resident enters the Facility is to receive long-term care that involves nursing, personal and supervisory care, meals, and support services, as stated in the Program Manual. In addition, it is not the intent of the Ministry to create a landlord and tenant relationship under the Admission Contract.
Input Tax Credits Claimed on Construction of the Facility
You advised that the Corporation claimed full input tax credits for the GST it paid on the acquisition of the land that forms part of the Facility and the costs of constructing it. Pursuant to section 169, the ability of a person to claim input tax credits is limited to the extent that the person acquired property or services for consumption, use or supply in the course of commercial activities of the person. The definition of "commercial activity" in subsection 123(1) specifically excludes a business carried on by a person that involves the making of exempt supplies by the person. Therefore, to the extent that the tax paid or payable on construction services acquired in constructing the Facility are inputs into the making of exempt supplies, the Corporation will not be eligible for input tax credits in respect of the tax paid or payable on the land and the construction services.
Should you have any further questions or require clarification on the operating subsidy received by the Corporation from the Ministry, please contact Glenda MacInnes at (613) 952-8531. In respect of any other matter discussed above, please do not hesitate to contact me at (613) 954-4393.
Yours truly,
Hugh Dorward
Real Property Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate
2005/12/21 — RITS 49336 — Tax Status of Memberships
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