6 December 2002 GST/HST Ruling 35845 - GST Status of Payments Made to Operator by Public Works and Government Services Canada

Excise and GST/HST Rulings Directorate Place de Ville, Tower A, 15th floor 320 Queen Street Ottawa ON K1A 0L5XXXXX XXXXX XXXXXXXXXX

Case Number: 35845December 6, 2002

Subject:

GST/HST APPLICATION RULING XXXXX

Dear XXXXX:

We refer to letters of XXXXX and XXXXX (with attachments) from XXXXX, and to your letter of XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the transactions described below. We apologize for the delay in our response.

Please be advised that while the original request for a GST/HST ruling was received from XXXXX, we have not received authorization from you to disclose information to that firm. We are therefore addressing our response directly to you. Further, as discussed in our telephone conversations, we will restrict our response to funding received from the federal government as we have not been provided with agreements outlining the funding received from the provincial government or other XXXXX.

All legislative references are to the Excise Tax Act (the Act).

Statement of Facts

Our understanding of the facts and transactions is as follows:

1. XXXXX (the Home) is operated by XXXXX (the Operator), which is owned by XXXXX which in turn is owned by XXXXX.

2. The Operator makes the Home available to individuals XXXXX who are XXXXX and who are temporarily in XXXXX to receive medical treatment. The medical treatments are not performed at the Home, but the Home serves as the individual's temporary place to stay while receiving medical treatment. The majority of persons using the Home and its services are XXXXX travelling to XXXXX from their XXXXX

3. The Home is located at XXXXX and is comprised of XXXXX suites with a XXXXX person capacity. Each suite has a kitchenette and a full private bathroom. The Home also has a dining room, playroom, common room, a recreational area, lounge areas and a laundry facility.

4. The Home operates in accordance with XXXXX (the Agreement) for the provision of boarding services which Health Canada is required to provide to XXXXX. The Agreement is between the Operator and Public Works and Government Services Canada (PWGSC) and makes the following provisions:

(a) Paragraph 1 of Part II provides that the Operator will provide services to XXXXX people temporarily in XXXXX for medical attention on an "if-and-when-requested" basis in accordance with the terms and conditions and for the fees set out in the Agreement.

([b]) XXXXX to the Agreement sets out the responsibilities of the Operator which, in addition to accommodations, include

XXXXX XXXXX XXXXX XXXXX XXXXX

5. The Operator is not registered for GST/HST purposes and is not a "public service body" as that term is defined in the Act.

6. A minor portion of the Operator's revenues come from XXXXX who acquire accommodations and meals for their XXXXX where the amount is not paid by PWGSC. Further, some revenues come from the XXXXX for accommodations and meals for XXXXX. These fees are paid on a per occupancy basis.

7. Based on certain information submitted to us, for the period of XXXXX to XXXXX, the following observations are made:

(a) One individual stayed in the Home continuously for a period of 11 months. Three other individuals stayed in the Home continuously for periods of 8 months, 7 months and 4 months.

(b) One couple (two family members) stayed in the Home continuously for a period of 3 months, another couple also stayed for 3 months, while another couple stayed for two two-month periods (with a one-month break in between).

As such, at least XXXXX (and possibly as many as XXXXX) of the suites in the Home were occupied continuously for periods of at least 60 days. Nonetheless, no specific rooms in the Home are held for persons who will stay there for periods of 60 days or more (or who you expect will stay there for 60 days or more at the time of their admittance to the Home).

Ruling Requested

You are requesting a ruling on the GST status of payments made to you by PWGSC under the Agreement.

Rulings Given

Based on the facts set out above, we rule that:

1. In respect of individuals who are given continuous occupancy of a suite in the Home for a period of at least one month, you are making an exempt supply to PWGSC under the Agreement. This is the case whether the individual receives "Care" services or "Additional Care Support" as set out in XXXXX to the Agreement.

2. In respect of individuals who are not given continuous occupancy of a suite in the Home for a period of at least one month, you are making taxable supplies to PWGSC under the Agreement. This is the case whether the individual receives "Care" services or "Additional Care Support" as set out in XXXXX to the Agreement.

3. In respect of individuals who are provided meals only (or a bagged lunch), and do not stay overnight at the Home, you are making taxable supplies to PWGSC under the Agreement.

These rulings are subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST/HST Memoranda Series. We are bound by the rulings provided that none of the above issues is currently under audit, objection, or appeal; that there are no relevant changes in the future to the Excise Tax Act, or to our interpretative policy; and that you have fully described all necessary facts and transactions for which you requested a ruling.

Explanation

The first matter to be determined is whether the funds received from PWGSC are consideration for a supply or a grant. If the funds are consideration for a supply, then it will be necessary to determine whether the supply is taxable or exempt. If the funds are a grant, no GST will apply and no further analysis is necessary. The enclosed Technical Information Bulletin B-067, Goods and Services Tax Treatment of Grants and Subsidies, must be reviewed in determining whether the funds are consideration for a supply or a grant.

Consideration for a Supply or a Grant?

It is our view that Technical Information Bulletin (TIB) B-067 does not apply to the payments provided by PWGSC to the Operator, i.e. that the payment is consideration for a supply and not a grant.

There are several indications that PWGSC makes the payments for a purchase purpose.

When the Government of Canada uses a Standing Offer and Call-up Document, the payments made under that offer come from a department's vote (amounts appropriated by Parliament for specific purposes) for purchases. When the government uses a contribution or grant agreement, the payments come from a department's transfer payment vote. According to the financial policy of the government, this vote is only to be used when the government does not receive any goods or services for the payment.

PWGSC's use of a standing offer is an indication that the payment is for a purchase purpose. This, by itself, is not sufficient to determine that the payment is linked to a supply provided by a boarding home. However, there are other indications as well.

The TIB acknowledges that a purchase purpose may apply even if the grantor is a public sector body and some public benefit results, and that when a grantor is "contracting-out" the payments are very likely made for a purchase purpose. In this case, it is our view that PWGSC is contracting-out or purchasing an input to its own programs rather than financially supporting the activities of the Home.

In order to use a boarding home, an individual must first approach Health Canada and receive its approval. PWGSC will then purchase the services of the Operator as required under the Standing Offer through a call-up document. In the Standing Offer-the Operator offers to provide (on the behalf of Health Canada), on an "if and when requested" basis, XXXXX and associated services to XXXXX people temporarily in XXXXX for medical attention. It is important to note that the documentation states the offeror provides services to XXXXX people "on behalf of Health Canada".

It is also important to note that Health Canada sets the standards and requirements of the Home's services and standards of care and operation. Under the standing offer, Health Canada Medical Services Branch (MSB) coordinates patient placement to XXXXX in accordance with the patient's preference needs. In any case, the MSB identifies the patient being referred to the Home including the name, date of birth, sex, XXXXX and, if applicable, information on the patient's escort. MSB will advise the Operator of the time of patient arrival, expected departure and patient's medical appointment (doctor, time, place). MSB also advises the Operator when the patient needs a bag lunch. Additionally, all patients and escorts admitted to the Home must be approved by MSB.

The following is a summary of the indicators that lead us to believe this is a purchase or an input for MSB and that the payments made under the Standing Offer are consideration:

-    the standing offer sets out the agreement to be a purchase by the federal government

-    the MSB determines which clients or patients stay at the Home

-    the services are offered if and when requested by MSB and not by the patient

-    MSB sets the specifications of the Home

-    The Operator provides services on behalf of MSB

As PWGSC is liable under the combination of the Standing Offer and the Call-up Document to pay for the supplies provided by the Operator, PWGSC is the recipient of the supply and will be required to pay the tax (if the supply is taxable).

In a situation where a supplier provides several goods and services together, it is necessary to determine whether the supplier is making a single supply or separate supplies. The enclosed policy paper P-077, "Single and Multiple Supplies", provides assistance in making this determination.

Single supply or multiple supplies?

It is necessary to determine whether, under the Agreement, the Operator is making a single supply or multiple supplies in light of P-077.

It is our view that the Operator is making a single supply based on the following observations:

1. The Operator agrees to provide all the properties and services set out in XXXXX. PWGSC pays one all-inclusive fee on a per patient per day basis to the Operator in respect of the Operator's supply of services. It is not possible for the Operator to provide only some of the services to the exclusion of others, at least in respect of those patients who stay overnight. For example, it is not possible for the Operator to supply a room but no meals. (The Operator does supply "Meals-only" to some patients, but just to those who are in XXXXX only for the day and are not staying overnight at the Home. In such cases a separate fee is payable for each meal consumed by the day patient.) PWGSC will pay a higher fee where the Operator supplies Additional Care Support services. This fee varies depending on the extent of the additional care services.

2. There is one supplier (the Operator) and one recipient (PWGSC).

3. The purpose of PWGSC acquiring the services of the Operator is to fulfill Health Canada's obligations to temporarily house XXXXX in XXXXX for medical treatment. In the context of PWGSC's needs, any one element supplied on its own would be of little or no use to PWGSC. Similarly, for patients staying at the Home, they are looking to have all of their accommodation needs met.

4. Once a patient is admitted to the Home, the individual receives or has the right to receive all of the services as set out in XXXXX to the Agreement. Contractually, PWGSC has the right to have the Operator supply all the services set out in XXXXX.

Having determined that this is a single supply, it is necessary to characterize the supply. That is, it must be determined what the Operator supplies in return for the payments PWGSC makes under the Agreement.

Characterization of the Supply

The objective of the Operator in making the supply appears to be set out in XXXXX of the Agreement in the section entitled, XXXXX wherein the Operator agrees to provide XXXXX and associated services to XXXXX XXXXX people temporarily in XXXXX for medical attention. The root of the transaction in this case appears to be the supply by the Operator of the right of a patient to stay in a suite in the Home. While the Operator makes other services available to patients of the Home, XXXXX the dominant element of the supply appears to be that of making a suite in the Home available to patients of the Home. The other property and services supplied are not sufficient in this case to change the characterization of the supply from being that of the right to a suite in the Home to that of receiving personal or medical care services, as may be the case in other situations where a combination of accommodations and services are provided. From a patient's perspective, it would appear that, in staying at the Home, they are chiefly satisfying the need for a place to stay while temporarily in XXXXX for medical treatments.

Accordingly, we view the supply by the Operator as a right given to patients to stay in the Home or, more broadly, a supply of real property. Having made this determination, it is necessary to consider whether any exempting provisions apply to the supply.

Determining the Tax Status of the Supply

Paragraph 6(b) of Part I of Schedule V to the Act exempts the supply of a residential unit by way of lease, licence or similar arrangement for the purpose of its occupancy as a place of residence or lodging by an individual, where the consideration for the supply does not exceed $20 for each day of occupancy. The consideration for the supply, which is paid by PWGSC, exceeds $20 for each day of occupancy and hence, this exemption does not apply.

Paragraph 6(a) of Part I of Schedule V to the Act exempts a supply of a residential complex or a residential unit in a residential complex by way of lease, licence or similar arrangement for the purpose of its occupancy as a place of residence or lodging by an individual, where the period throughout which continuous occupancy of the complex or unit is given to the same individual under the arrangement is at least one month. Therefore, if the Home, or part of it, qualifies as a residential complex, supplies to patients of one month or more that are made in the Home, or in that part of the Home that is a residential complex, will be exempt under paragraph 6(a) of Part I of Schedule V. Supplies of less than one month will not be exempt under paragraph 6(a).

The definition of "residential unit" in subsection 123(1) includes

"(b) a suite or room in a hotel, a motel, an inn, a boarding house or a lodging house or in a residence for students, seniors, individuals with a disability or other individuals, or

(c) any other similar premises, or that part thereof that

(d) is occupied by an individual as a place of residence or lodging,

(e) [i]s supplied by way of lease, licence or similar arrangement for the occupancy thereof as a place of residence or lodging for individuals ...".

Subsection 123(1) defines a "residential complex", in part, as

"(a) that part of a building in which one or more residential units are located, together with

(i) that part of any common areas and other appurtenances to the building and the land immediately contiguous to the building that is reasonably necessary for the use and enjoyment of the building as a place of residence for individuals, and

(ii) that proportion of the land subjacent to the building that that part of the building is of the whole building ...

but does not include a building, or that part of a building, that is a hotel, a motel, an inn, a boarding house, a lodging house or other similar premises, or the land and appurtenances attributable to the building or part, where the building is not described in paragraph (c) and all or substantially all of the leases, licences or similar arrangements, under which residential units in the building or part are supplied, provide, or are expected to provide, for periods of continuous possession or use of less than sixty days".

In determining whether the Home is a "hotel, motel, inn ..." the guidelines in enclosed policy paper P-099, "The Meaning Of 'Hotel', 'Motel', 'Inn', 'Boarding House', 'Lodging House' And 'Other Similar Premises, As Used In The Definition Of 'Residential Complex' And 'Residential Unit'", must be considered. These guidelines are as follows:

•   the establishment normally provides temporary accommodation rather than a permanent place of residence;

•   where required by municipal and/or provincial regulations, the establishment is licensed for business for the purpose of providing a temporary place to stay;

•   the establishment is available for rental to the public on a temporary [transient] basis

[For this purpose, the public is considered to be either the community as a whole or a defined class of the public, such as students or senior citizens. Excluded from this concept of the public is a limited group of persons, where such group is limited by some unique characteristics not found in the public at large, such as employees or shareholders of a particular company.]

•   where appropriate, there is a common registration area;

•   the rooms or suites in the establishment are furnished by the supplier;

•   depending on the nature of the establishment, housekeeping services and other facilities are available such as restaurants, meeting rooms, stores, etc.

Suites in the Home are not available to members of the public at large and instead are restricted to XXXXX. As such, we do not consider the Home to be a hotel, motel, inn, boarding house, lodging house or similar premises. Therefore, the Home is not excluded from the definition of a residential complex and where the conditions in the aforementioned paragraph 6(a) are met, the supply is exempt. That is, the exemption in paragraph 6(a) applies to those supplies that involve a patient occupying a suite in the Home for a period of at least one month. Where a patient is given continuous occupancy of a suite in the Home for a period of less than one month ("short-term stays"), the supply is not exempt under paragraph 6(a). We must consider whether other provisions within Schedule V apply to exempt the supply of short-term stays.

Section 2 of Part IV of Schedule V to the Act exempts 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 service. It is not clear whether individuals using the Home could be considered underprivileged individuals or individuals with a disability. At any rate, the Home would not be considered a place of residence of the individual as those staying at the Home are in XXXXX on a temporary basis while receiving medical treatment at another facility. As such, the exemption in section 2 does not apply to the Operator's supply of short-term stays.

Section 3 of Part IV of Schedule V to the Act exempts a supply of a service of providing care and supervision to an individual with limited physical or mental capacity for self-supervision and self-care due to an infirmity or disability, if the service is rendered principally at an establishment of the supplier. While "care and supervision" is not defined in the Act, the XXXXX defines "personal care" as care in the nature of

(a) basic nursing care under the supervision of a registered nurse, or

([b]) personal assistance in the activities of daily living, or

([c]) supervision of activities of daily living together with goods and services that are specified in the regulations as goods and services that are provided as part of personal care.

Our understanding is that staff at the Home does not provide any of these services. Staff need no formal training other than first aid and they are not permitted to administer prescription drugs. As such, the exemption in section 3 does not apply to the Operator's supply of short-term stays.

No other exempting provisions apply to the supply of short-term stays and accordingly, the supply is taxable.

There are no provisions to exempt the supply of a meal or bagged lunch to a patient who receives such from the Operator in cases where the patient does not stay overnight at the Home. Accordingly, the Operator is making a taxable supply to PWGSC in this respect.

Additional Information

Under subsection 240(1), every person who makes a taxable supply in Canada in the course of a commercial activity engaged in by the person in Canada must register for the GST/HST, except where:

(a) the person is a small supplier (refer to enclosed GST/HST Memorandum 2.2, Small Suppliers, for more information on small suppliers),

([b]) the only commercial activity of the person is the making of supplies of real property by way of sale otherwise than in the course of a business, or

([c]) the person is a non-resident person who does not carry on any business in Canada.

As a registrant, a person is required to charge and collect tax on taxable supplies in accordance with the provisions of section 221.

Should you have any further questions or require clarification on the above matter, 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
XXXXX

Encl.

Legislative References:	ETA - s. 240, V/I/6, V/IV/2, 3
NCS Subject Code(s):	R-11846-3, 11872-1, 11950-1