7 May 1998 GST/HST Interpretation HQR0000369 - Application of the GST/HST to the Operations of the District Health Board

                                                                        GST/HST Rulings and Interpretations
 Directorate
Place Vanier, Tower C, 10th Floor
25 McArthur Road
Vanier, Ontario
XXXXX                                                                                 K1A 0L5

Thank you for your letter of October 18, 1996, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the operations of the XXXXX (the "Board").

Statement of Facts

1) The XXXXX (the "Board" ) was established pursuant to XXXXX[.] The hospital and ambulance boards within the health district were subsequently dissolved and all the assets, liabilities, rights and obligations of each hospital and ambulance board was transferred to the new district health board. As a result, the health care facilities such as the hospitals that existed prior to the creation of the health districts no longer exist as legal entities.

2) Section 23 of the XXXXX provides that each district health board is a not-for-profit corporation. Also, the Board is a registered charity and is registered for GST purposes.

3) The Board has one centralized accounting system for all facilities in the XXXXX[.]

4) The Board operates the following facilities:

a) The main administrative office for the health district which is involved in centralized payment of bills, purchasing for the facilities within the district, payroll and human resources.

b) XXXXX hospitals that provide 24 hour acute care on both an in-patient and out-patient basis, some chronic care, obstetric services, patient accommodation along with both laundry and meal services and ambulance services to the public. These hospitals were recognized as public hospitals by the province before the formation of the health district and the board.

c) XXXXX combined hospital and nursing home. This facility provides 24 hour acute care on both an in-patient and out-patient basis, performs surgery and post surgical and medical care, provides obstetric services and patient accommodation along with both laundry and meal services. This facility was recognized as a public hospital by the province before the formation of the new health district. The facility's nursing home operation provides accommodation, meals and 24 hour long-term care to residents requiring personal care. It also provides ambulance service to the public.

d) XXXXX health centres with in-patient beds, clinic and long-term care. These facilities provide 24 hour drop-in clinic nursing service seven days a week but are primarily involved in the provision of accommodation, meals and 24 hour long-term care to residents requiring personal care. Each facility possesses two in-patient beds for observation and stabilization of patients. They also provide ambulance services to the public. These facilities were previously recognized as public hospitals by the province before the new health district was created.

e) XXXXX health centre with clinic and long-term care. This facility was recognized as a public hospital before the health district was created. It provides 24 hour drop-in clinic nursing service seven days a week but is primarily involved in the provision of accommodation, meals and 24 hour long-term care to residents requiring personal care. It also provides ambulance service to the public. It does not possess any in-patient beds.

f) XXXXX health centres with clinic open limited hours. These facilities were converted to health centres after the formation of the health district. Prior to the formation of the health district they were recognized by the province as public hospitals. The facilities provide a drop-in clinic nursing service form 9:00 A.M. to 4:00 P.M., Monday to Friday and ambulance service. These centres have no long term care facilities and no inpatient beds.

g) XXXXX nursing homes that provide accommodation, meals and 24 hour long-term care to residents requiring personal care.

h) XXXXX home care operation that provides home based care for patients. Nurses or nurse's aids make regular visits to elderly individual's homes to provide medical care.

i) XXXXX community services operation to individuals. These services include public education, immunizations for students at schools, physiotherapy, public health inspections, etc. As part of this operation, the board also operates a "meals on wheels" program whereby prepared meals are sold to elderly individuals for a set amount per meal.

j) Ambulance services.

Questions Asked

You have asked the following questions:

Question 1 - Designations

a) In general, what part or parts of a health district will be designated to be a "hospital authority"?

b) Will the designations be based on facilities located in the health district that qualify as "hospital authorities" or will the designations be based on activities (i.e., health care services) that have traditionally been performed by hospitals?

c) If the designations will be based on activities that have traditionally been performed by hospitals, what activities (i.e., health care services) will be included as being traditionally performed by hospitals?

Question 2 - Rebates

Assuming that the Board is designated to be a hospital authority what rebate can it claim with respect to the operations described in fact 5 of your letter?

Question 3 - Apportionment Rules

New subsection 4.1 provides that a charity that is also a selected public service body must apportion its rebates based on the extent to which its purchases are used in its capacity as a charity and as a selected public service body. You have asked whether there are any guidelines or methods that the Board can use to apportion its rebates for its combined operations such as its main administrative office and the combined hospital and nursing home.

Response Given

Question 1(a)

Pursuant to subsection 123(1) of the Act, hospital authority is defined to mean an organization that operates a public hospital and that is designated by the Minister as a hospital authority. Prior to the amendment to the definition in 1996, hospital authority was defined to mean an organization or part of an organization that operates a public hospital and that is designated by the Minister as a hospital authority. Because of the change in the definition we will not be designating parts of the Board to be a hospital authority. In order for an organization such as the Board to be designated as a hospital authority, it must operate a public hospital that meets the following criteria:

a) it is recognized as a public hospital by the government of the province in which it is located,

b) it is established and operated otherwise than for profit,

c) it is operated for the medical or surgical treatment of the sick or injured; and

d) it provides and maintains in-patients beds and services.

We have designated the Board as a hospital authority effective XXXXX as it is operating public hospitals that meet the above criteria.

Question 1(b)

The designation is based on whether the Board is operating a public hospital that meets the above-noted criteria.

Question 1(c)

The Department does not at the present time maintain a list of activities performed by hospitals. Many of the services provided by hospitals are listed in Part II of Schedule V to the Act. If you have any questions concerning whether certain services are considered to be hospital activities, presumably for purposes of the rebate, please provide us with details.

For your information, the Department is currently conducting a review of the health care industry by meeting with all the provincial health departments with the main focus being on the review of the above-noted criteria that are used for purposes of designating organizations as hospital authorities. As a result of this review, the criteria may change and a definition of what constitutes hospital activities may be provided.

Question 2

The Board is registered as a charity under the Income Tax Act and as such met the definition of a charity in subsection 123(1) of the Act prior to January 1, 1997. Effective January 1, 1997, hospital authorities that are registered charities will fall within the definition of public institution and are excluded from the definition of charity in the Act. As a public institution effective January 1, 1997, and a charity before that date, the Board is entitled to a rebate of 50 per cent of the GST paid by it on inputs for which it is not entitled to claim an input tax credit. However, since the Board has been designated as a hospital authority retroactive to December 1, 1993, the date it was created, it is also entitled to claim a rebate of 83 per cent of the GST paid on its acquisitions of goods and services used in its exempt hospital activities. Since the Board is entitled to a rebate of 83 per cent in respect of inputs used in its exempt hospital activities and a rebate of 50 per cent in respect of inputs used in other exempt activities, it will have to apportion its inputs between these activities in order to determine its rebates.

For example, the Board will be entitled to a rebate of 83 per cent of the GST paid on inputs used in its exempt hospital activities related to operating its public hospitals including that portion of expenses used in operating its main administrative office that relates to their exempt hospital activities. In addition, it will be entitled to a rebate of 50 per cent of the GST paid on inputs used in exempt activities as a charity (and a public institution effective January 1, 1997), such as its nursing homes and community service operations. It will also be entitled to claim a rebate of 50 per cent of the GST paid on inputs used in the operation of the administrative office that relates to its exempt activities as a charity or as a public institution.

Please be advised that it will be determined during our above-noted review whether the Board will be eligible to claim the hospital rebate with respect to its ambulance services and home care operations.

Please note that with respect to the health centres outlined in item 5(d), (e) and (f) of your letter that were previously recognized as public hospitals by the Province of XXXXX but are no longer recognized as such by the province because of the reform of the health care system, the Board will only be eligible to claim a rebate of 50 per cent with respect to their exempt activities as they do not meet the four criteria outlined above. With respect to the combined hospital and nursing home in XXXXX referred to in item 5(c) of your letter, our records show that the province still recognizes a public hospital in XXXXX which is probably the same facility you are referring to. Since this facility is a combined hospital and nursing home the Board will be required to apportion the GST between its hospital and nursing home activities when claiming rebates with respect to this facility.

Question 3

Since XXXXX is a public institution (and previously a charity ) and a hospital authority it is required under subsection 259(4.1) of the Act to apportion its rebates based on the extent to which its purchases are used in its capacity as a public institution (and before that a charity) and as a hospital authority. The Department has not developed any written guidelines or methods that organizations can employ to apportion its rebates. However, the method used by the Board has to be reasonable in the circumstances and must be used consistently throughout the year.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact Owen Newell, A/Manager at 954-4280 or the undersigned at 954-4395.

Yours truly,

Neil Minken
Healthcare and Municipalities Unit
PSBs and Governments Division
GST/HST Rulings and Interpretations Directorate

c.c.:      E. Vermes
            S. Eastman
            L. Dixon
            J. Crago
            N. Minken
XXXXX