23 May 2007 GST/HST Ruling 87244 - XXXXX - Option Agreement

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.

Dear XXXXX:

Thank you for your letter XXXXX wherein you questioned the availability of the 83% public service body (PSB) rebate of the Goods and Services Tax (GST) and the federal component of the Harmonized Sales Tax (HST) to a hospital authority with certain long-term care operations. XXXXX you discussed this issue with Elaine Bonnah of this office.

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

We understand that your client (referred to as "TAXPAYER" in your letter) is a hospital authority operating a public hospital. XXXXX you advised that TAXPAYER has the authority of a province to operate a public hospital in the province and that it is totally funded by the province. XXXXX you advised that the public hospital had initially operated as a multi-purpose public hospital but has since come to specialize in the provision of long-term care. Acute care and palliative care are also provided at the public hospital. All of the health care supplied by TAXPAYER as a hospital authority to patients in its long-term care operations is provided in the public hospital building. TAXPAYER does not provide this health care to patients through a separate facility. The public hospital building where TAXPAYER supplies the long-term care has, among other things, an emergency room, x-ray facilities and laboratories.

XXXXX you also confirmed that prior to XXXXX, TAXPAYER had claimed and continues to claim the 83% PSB rebate as a designated hospital authority for GST/HST purposes in respect of its operations as a public hospital. Effective January 1, 2005, the 83% PSB rebate was extended to certain entities providing certain health care services, as defined in subsection 259(1). In your view, TAXPAYER qualifies for this 83% rebate in respect of its provision of long-term care to patients in the long-term care operations at the public hospital on the basis that it is a hospital authority making facility supplies at its long-term facility. Your position is based on the following:

•   The supply of care is made available or rendered to an individual at a public hospital or a qualifying facility. TAXPAYER is a public hospital and a qualifying facility.

•   Without TAXPAYER long-term care services, its patients would likely "fail to thrive". As such, its services are part of a medically necessary process of health care for the 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. For reasons of self care deficits (cognitive and physiological), individuals in receipt of services are unable to perform activities of daily living and/or are at risk of serious injury or death in the absence of said services.

•   Its services are undertaken in whole or part at the public hospital or qualifying facility.

•   All TAXPAYER's patients long-term care operations are under a "Consent to Treatment Agreement". Their treatment is provided by physicians on a regular basis, as well as other health care professionals, under the auspices of the attending physicians. In practice, the vast majority of physicians visit their patients at least on a weekly basis. Services are ordered and customized under the guidance of the attending physician in an effort to treat or prevent the worsening of present or incipient illness.

•   The patients in TAXPAYER long-term care operations are chronic care patients.

•   All patients are required to stay overnight. They must be admitted long-term or for a period of respite.

•   There is at least one full-time registered nurse (RN) at the facility at all times. Between 7:30 am and 4:30 pm, there are at least XXXXX RNs on each ward. After 4:30 pm, RNs make hourly rounds of each ward.

•   Because of the nature of its operations, there are physicians available at all times.

•   All patients in TAXPAYER long-term care operations require care that is described as Type III in nature by Statistics Canada for its purposes of collecting data on equivalencies of care. It is described as care requiring 24-hour availability of professional nursing care and supervision and medical management and/or therapeutic care with individual care a minimum 2.5 hrs/day.

•   Each resident is provided an Individualized Care Plan. In all cases, the Care Plan incorporates therapeutic services providing such licensed professionals as Occupational Therapists, Physical Therapists, Dieticians, Social Workers, Recreational Therapists, Pastoral Care professionals, Respiratory Therapists, Holistic Health professionals sanctioned by the attending physician and Pharmacists. On average, each patient is provided with 3.4 to 3.6 hours of such therapeutic health care per day. The amount of therapeutic services increases with the acuity of the resident's condition.

Interpretation Requested

You would like to know whether TAXPAYER qualifies for the 83% PSB rebate available under subsection 259(1) as a hospital authority making facility supplies.

Interpretation Given

As we have insufficient information with respect to TAXPAYER and the supplies it makes to patients in the long-term care operations at the public hospital to establish all the pertinent facts, we are unable to conclude whether TAXPAYER is making facility supplies and qualifies for the 83% PSB rebate available under subsection 259(1). Accordingly, we have provided the following comments for your review and guidance.

Comments

Pursuant to section 259, a "hospital authority" may claim the 83% PSB rebate of non-creditable tax charge to the extent that it intended to consume, use or supply property or services in activities engaged in by the person in operating a qualifying facility where facility supplies are made, or making facility supplies, ancillary supplies or home medical supplies.

If 90% or more of the purchases made by a hospital authority in a claim period are to operate the public hospital or to operate a qualifying facility where facility supplies are made, or to make facility supplies, ancillary supplies or home medical supplies, the hospital authority may claim the 83% PSB rebate on all of the GST and federal component of the HST that it paid or is payable on its purchases. If less than 90% of the purchases made by a hospital authority in a claim period are to operate a public hospital or to operate a qualifying facility where facility supplies are made, or to make facility supplies, ancillary supplies or home medical supplies the hospital authority may claim the 83% PSB rebate and the federal part of the HST that it paid or is payable on its purchases to the extent that they are used for these purposes. For example, if a hospital authority uses 70% of its purchases in the operation of a public hospital and 10% of its purchases to make facility supplies, it would be entitled to claim the 83% PSB rebate on 80% of its purchases.

Please note, a hospital authority that makes supplies at a public hospital that do not meet the requirements set out in the definition of "facility supply" would be limited to the 83% PSB rebate in respect of its operations as a public hospital, in accordance with the enclosed 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. In order to be designated as a "hospital authority" for purposes of claiming the 83% rebate in respect of its operations, an organization that operates a "public hospital" must encompass certain characteristics and meet all of the criteria described therein. Where a facility does not meet or ceases to meet all of these conditions, it is not a public hospital for GST/HST purposes and the hospital authority is not entitled to claim the 83% PSB rebate in respect of its operations. Where required, the CRA will issue a letter to the hospital authority revoking its designation.

You have advised that TAXPAYER is a hospital authority that has been claiming the 83% PSB rebate in respect of its operation of a public hospital.

You have also advised that the issue relevant for TAXPAYER is whether it makes facility supplies. As such, we have not addressed the matter of whether TAXPAYER makes ancillary supplies or home medical supplies.

To determine whether TAXPAYER is making facility supplies at a public hospital and therefore entitled to the 83% PSB rebate under section 259, we have first provided the definition of "facility supply" for ease of reference.

Facility supply

Subsection 259(1) defines the term "facility supply" as an exempt supply of property or a service in respect of which:

(a) the property is made available, or 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 or 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 practice of medicine,

(B) a midwife acting in the course of the practice 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 practice 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.

In order for a supply of property made available or a service rendered by a hospital authority at a public hospital to be a "facility supply", the first requirement that must be met in its definition is that the supply must be an exempt supply for GST/HST purposes. Taxable supplies cannot qualify as facilities supplies. Therefore, only exempt supplies made by a hospital authority at a public hospital could qualify as facility supplies if the other requirements set out in the definition of "facility supply" are met.

The second requirement that must be met in the definition is that the exempt supply must be made 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 of the individual or providing palliative care and the process must reasonably be expected to take place under the active direction or supervision, or with the active involvement, of either a physician acting in the course of the practice of medicine or in certain circumstances, a midwife, a nurse practitioner or a person prescribed by regulation.

Where a hospital authority operates a public hospital that has chronic care patients who stay overnight at the public hospital, the additional requirements set out in clauses (a)(iii)(A) to (D) of the definition of "facility supply" must also be met. That is, the medically necessary process of health care for the individual must require, or reasonably be expected to require, that a registered nurse be at the public hospital at all times during the individual's stay; that a physician be at, or be on-call to attend, at the public hospital at all times during the individual's stay; and that the individual be subject to medical management and receive a range of therapeutic health care services, including registered nursing care, throughout the process for more than 10% of each calendar day or part of the day during which the individual stays at the public hospital.

You have advised that TAXPAYER operates a public hospital where chronic care patients in its long-term care operations located in the public hospital building stay overnight. An Individualized Care Plan is developed for each patient with patient treatment being provided on a regular basis by physicians. A vast majority of the physicians visit their patients at least on a weekly basis. Physicians are available at all times to provide care to patients in the long-term care operations at the public hospital. At least one RN is located in the long-term care operations at the public hospital at all times. On average, each patient in the long-term care operations receives 3.4 to 3.6 hours of therapeutic care each day from licensed professional therapists (e.g., occupational; physical; recreational; respiratory). The amount of therapeutic services is dependent upon the acuity of a patient's condition (e.g., increases with the acuity of illness).

In order to ascertain whether certain supplies made by TAXPAYER - a hospital authority - to the chronic care patients in the long-term care operations at the public hospital are facility supplies, each supply would have to be examined separately to determine whether the requirements set out in the definition of "facility supply" are met. For example, while an exempt supply of a cardiograph service made by a hospital authority on the orders of a physician to a chronic care patient staying overnight at a public hospital would fall within paragraph 259(a)(i) and (ii), the other requirements set out in clauses (a)(iii)(A) to (D) of the definition would have to be met in order for its supply to be a "facility supply".

To facilitate the provision of a more definition response to your query, we would have to review any agreements or other documentation relevant to the matter. If the information submitted to us is sufficient, we would be pleased to issue a GST/HST Ruling letter to you indicating whether TAXPAYER qualifies for the 83% PSB rebate in respect of certain supplies it makes to chronic care patients in the long-term care operations at the public hospital.

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 613-954-7952.

Yours truly,

Lynn Fournier Renner
Municipalities and Health Care Services Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate

2007/05/03 — RITS 87246 — [Application of the GST/HST to Clinical Services Supplied by a Medical Practitioner]