14 February 1997 GST/HST Interpretation HQR0000489 - Lease of Nursing Homes

                                                                        File: 11870-2 - 11870-5

Dear XXXXX

Thank you for your letter of January 2, 1997, in which you requested an interpretation of section 6.1 of Part I of Schedule V to the Excise Tax Act (the Act) as it applies to the facts and proposed transactions set out below. We are unable to provide you with an advance ruling on these transactions without disclosure of the parties to the transactions and a third party authorization from the party you are representing.

Purpose of the Proposed Transactions

We understand that the purpose of the proposed transactions is to allow Canadian public investors to invest, through publicly offered securities, in Canadian real property to be leased to persons carrying on a residential health care business.

Facts and Proposed Transactions

Our understanding of the facts of the proposal is as follows:

1. A trust (the Trust) will be settled pursuant to the laws of XXXXX[.] The Trust will be a mutual fund trust within the meaning of section 132 of the Income Tax Act.

2. The Trust will make an offering of its units to the public.

3. The Trust will acquire existing nursing homes (Nursing Homes) and extended health-care facilities (Extended Care Facilities) from arm's length vendors. An Extended Care Facility is similar in nature to a Nursing Home but provides more extensive health care services to its occupants. None of the properties will be located in XXXXX[.]

4. The Trust will lease the Nursing Homes and the Extended Care Facilities to a Canadian corporation XXXXX on a long-term basis.

5. XXXXX will be a for-profit corporation. The Trust and XXXXX will be operating at arm's length.

6. XXXXX will lease or similarly provide, on a monthly basis, rooms in the Nursing Homes and Extended Care Facilities to senior citizens. In addition, XXXXX will provide meals, health care services and other services as are generally provided in nursing home facilities.

7. The seniors will pay XXXXX monthly fees for the use of their rooms in the Nursing Homes or the Extended Care Facilities and for the other services provided by XXXXX[.]

8. Some space in the Nursing Homes and Extended Care Facilities will be leased to third parties for non-residential use. For example, a space in one of the Nursing Homes will be leased to a third party who will operate a barber shop and another space will be used by a tenant's association to operate a convenience store.

Interpretation Requested

You have asked that we confirm that, pursuant to section 6.1 of Part I of Schedule V of the Act, the lease of the Nursing Homes and Extended Care Facilities by the Trust to XXXXX will be an exempt supply within the meaning found in subsection 123(1) of the Act. It is your opinion that this exempting provision will apply regardless of the fact that section 2 of Part II of Schedule V to the Act exempts certain supplies such as accommodation provided in a health care facility.

Interpretation Given

Based on the information provided we provide the following interpretation:

The Trust's lease to XXXXX of the parts of the Nursing Homes or Extended Care Facilities above that meet the definition of "residential complex" will be exempt from GST pursuant to section 6.1 of Part I of Schedule V.

The Trust's lease to XXXXX of the parts of the Nursing Homes or Extended Care Facilities that do not fall within the definition of residential complex will be taxable.

Explanation

Section 6.1 of Part I of Schedule V to the Act provides an exemption from GST for the supply of a residential complex to a person who is in turn making supplies of the complex, all or substantially all of which are exempt supplies described in section 6 or section 7 of Part I of Schedule V to the Act. Section 6 of Part I of Schedule V describes the supply of a residential unit in a residential complex for the purpose of the unit's continuous occupancy as a place of residence or lodging by an individual for a period of at least one month.

The term residential complex is defined in subsection 123(1) of the Act. It includes the part of a building, its common areas, appurtenances and contiguous land that is reasonably necessary for the use and enjoyment of the building as a place of residence together with a proportional amount of the land subjacent to the building. The Department does not consider the part of an otherwise residential building that is leased for business use to be reasonably necessary for the use and enjoyment of the building as a place of residence.

Further subsection 136(2) of the Act deems a supply of real property that includes a residential complex and a part that would not be a residential complex to be separate supplies. A single lease of a property that includes both residential and commercial space is deemed to be two separate supplies. Neither supply is incidental to the other. The consideration for the Trust's lease to XXXXX that is attributable to the part of the real property that XXXXX will lease to third parties for non-residential use will be subject to GST if the Trust is a GST registrant (registered voluntarily or required to be registered because it has exceeded the $30,000 small supplier threshold).

It is not clear from the information you had provided that the Nursing Homes or the Extended Care Facilities fall within the definition of health care facility found in section 1 of Part II of Schedule V to the Act. However, if one or both types of facilities meet this definition and the accommodation, health care services and some of the "other services" fall within the exemption described in section 2 of Part II of Schedule V to the Act, this would not exclude the Trust's lease of the residential parts of the properties from being exempt pursuant to section 6.1 of Part I of Schedule V to the Act.

The foregoing comments represent our general views with respect to the proposed amendments to the Excise Tax Act relating to the subject matter of your letter. These comments are not rulings and, in accordance with the guidelines set out in section 1.4 of Chapter 1 of the GST Memoranda

Series, do not bind the Department with respect to a particular situation.

Should you have any further questions or require clarification on the above or any other Excise/GST matter, please do not hesitate to contact the undersigned at (613)954-8852.

Yours truly,

Heather MacLeod
A/Policy Officer
Financial Institutions & Real Property
GST Rulings & Interpretations Directorate

Legal References:                   123(1) residential unit, residential complex, 136, par. 6(a) & s. 6.1 Pt. I Sch. V; s.1 & 2 Pt. II Sch. V.

Authority:                               Excise Tax Act

Reference:                               Bill C-70, minor changes to all provisions listed except s. 2, Pt II, Sch V.