27 June 2000 GST/HST Interpretation 25845 - Child and Personal Care Services

XXXXX

Thank you for your letter of January 14, 2000, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to payments made XXXXX to outside sources. Since we do not have any specific agreements and since XXXXX may enter into separate agreements with various outside sources, an interpretation (rather than a ruling) has been provided.

It is our understanding from telephone conversations with you and from your letter, that XXXXX places children in various types of residential facilities where the children reside and are cared for. The XXXXX is financed by the XXXXX[.] Due to a large demand for its services, XXXXX hires the services of "outside sources" to assist in the lodging and caring for children. You advise that an outside source may:

a) own and/or operate a foster home or group home where children are cared for, or

b) have available, a number of foster homes or group homes where they place children sent to them by XXXXX.

In each case, the outside source controls and supervises each setting to ensure that proper care is provided to each child. The outside source is responsible for placing the child where they deem necessary, taking into consideration the interests of the child.

XXXXX pays the outside source a per diem rate for each child according to guidelines established by the XXXXX[.] In the case of the situation described under (b) above, the outside source pays the foster homes and/or group homes a per diem rate.

Interpretation Requested

You would like an interpretation of the phrase "an establishment operated by the supplier", because, in your view, it appears that if a person owns and operates the establishment where children are cared for, the services provided to XXXXX are exempt, whereas if a person places children in some other establishment which they do not own or operate, but still supervise and are responsible for, the services provided to XXXXX are taxable.

Interpretation Given

A service provided to XXXXX by an outside source which owns and operates a group home (i.e., a group home staffed by employees of the outside source) is exempt under section 2 of Part IV of Schedule V to the ETA. Section 2 provides that the following supply is exempt from GST/HST:

"2. A supply of a service of providing care, supervision and a place of residence to children, underprivileged individuals or individuals with a disability in an establishment operated by the supplier for the purpose of providing such a service."

The Explanatory Notes issued by the Department of Finance clarify that in order for the service to be exempt, the care and supervision and the place of residence must be provided by the operator of the establishment (i.e., by employees of the establishment). It is our view that a group home staffed by employees of the outside source is an establishment operated by the outside source for the purpose of providing care, supervision and a place of residence and thereby meets the requirements of the exemption.

It is our view that a foster home is not an establishment operated by the foster parent for the purpose of providing such services. However, a service of "fostering", when provided by individuals, is generally not considered to be a commercial activity and, consequently, fees paid to foster parents are not subject to GST/HST. Consequently, if an outside source is a foster parent and is caring for children in their own home, monies paid by XXXXX for such a service are not subject to tax.

Where an outside source assesses foster homes and places and monitors children placed in those homes, monies received from XXXXX in respect of that supply is viewed as consideration for a taxable service unless the supplier (i.e., the outside source) is a charity or public institution. Again, however, it is important to note that payments made by the outside source to the foster parents in such a circumstance are not subject to GST/HST for the reasons described above (i.e., "fostering" is outside the scope of commercial activity).

It is our understanding that an outside source may also assess group homes (rather than foster homes as described in the immediately preceding situation) and place and monitor children in those homes, and that the individuals operating the group home are not employees of the outside source. Monies received by the outside source from XXXXX in respect of that supply is viewed as consideration for a taxable service unless, again, the supplier (i.e., the outside source) is a charity or public institution. Nevertheless, it is important to note that payments made by the outside source to the group home operators in this circumstance is not subject to GST/HST because the service provided by the group home operators is exempt under section 2 of Part IV of Schedule V to the ETA.

The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the Excise Tax Act, if enacted, could have an effect on the interpretation provided herein. These comments are not rulings and, in accordance with the guidelines set out in section 1.4 of Chapter 1 of the GST/HST Memoranda Series, do not bind the Canada Customs and Revenue Agency with respect to a particular situation.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-0420.

Yours truly,

Lorrie Grannary
Charities, NPO's and Educational Services Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate