17 October 2002 GST/HST Ruling 37298 - Communication Services Supplied by The

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

Case Number: 37298October 17, 2002

Subject:

GST/HST APPLICATION RULING Communication Services supplied by The XXXXX

Dear XXXXX

Thank you for your letter of XXXXX, and subsequent submissions, concerning the application of the Goods and Services Tax (GST) to the transactions of the XXXXX ("the Facility") described below.

The following contains references the Excise Tax Act. Please note that this is the legislation governing the application of the GST.

Statement of Facts

Our understanding of the facts and transaction is as follows:

1. The Facility provides accommodation, meals and snacks, medical supervision and light assistance with the activities of daily living for elderly residents with varying (but minimal) degrees of need for assistance.

2. The tenants sign a lease agreement (the "Agreement"), the pertinent terms of which follow (references are made to the clause numbers under the Agreement):

XXXXX The monthly fee for accommodation, care services and meals is $ per month (the 'Basic Fee') calculated as follows:

Accommodation (Rent)	$
Care Services & Meals	$
Basic Fee (total)

The Basic Fee is payable in advance by the Resident...and is due on the first of each month. ...

XXXXX The residential facilities, care services and meals to which the Resident is entitled, in addition to occupancy of the Suite...in return for payment of the Basic Fee, are set out on XXXXX.

XXXXX The Resident acknowledges that the services listed on XXXXX are optional and authorizes the Owner to supply the services chosen on XXXXX and agrees to pay the monthly charges for such services in addition to the Basic Fee.

XXXXX The (Facility) is not a hospital or long term care facility ... and is limited in how much care it can provide .... The Resident acknowledges that the Owner may apply ... for an order transferring the Resident out of (the Facility) if the resident ... requires a level of care that the Owner is not able to provide.

3. As noted above, XXXXX sets out what is provided for the Basic Fee; for example:

Residential Facilities: heat, hydro, water, private 3-piece bathroom, kitchenette, private dining room, lounges and activity rooms, ...

Care Services: minimum of RN, RPN, Paramedic or Resident Care Attendant on duty at all times ..., monitored two-way emergency response system..., medication supervision, limited activity program ..., daily maid service, weekly personal laundry ...

Meals: 3 meals and 2 snacks per day, ... meal service to Suite when authorized by Director of Health Services ....

4. As noted above, XXXXX sets out what is provided for an optional, additional fee (at issue are the Communication Packages); that is:

Parking ...

Additional Occupant in Suite ...

Optional Trips and Excursions ...

Communications Package #1

Touch-Tone telephone service with Voice Mail XXXXX per month

Communication Package #2

Touch-Tone telephone service with Voice Mail,

Plus XXXXX Cable TV

Plus unlimited Internet access. XXXXX per month

5. Concerning the Communication Packages, the resident is invoiced monthly by the Facility, not by the cable or phone company.

6. The Facility leases the telephone lines from XXXXX and in turn provides access to residents through an in-house telephone system.

7. Similarly the Facility leases bulk cable TV services from XXXXX and in turn provides access to residents through a pre-wired connection in each suite. These services are provided to the Facility under a ten-year lease executed XXXXX. XXXXX provides "the occupants of the Premises with Cable Services on a bulk billing basis to the Owner". The bulk billing is not dependant on the number of residents who choose to purchase the access from the Facility.

8. The Facility is a GST/HST registrant.

Ruling Requested

Is the Facility required to charge residents GST upon their acquisition of the Communication Packages described above

Ruling Given

Based on the facts set out above, we rule that that the provision of the Communication Packages represents taxable supplies.

That is, the provision of either Communication Package, if purchased by a resident, is a supply by the Facility that is separate from the supply of the leased residential accommodation (and the other supplies made under XXXXX (We weren't asked to rule on whether the care services and meals provided under XXXXX for the basic fee are also separate supplies that may be taxable. Possibly they may be part of a single supply of exempt accommodation following our policy concerning single and multiple supplies as described in this letter. If so, this presumes that the accommodation would remain an exempt supply when "coupled" with the care services and meals. Another possibility is that the care and meals may be viewed as separate supplies. If so, and since they are made for XXXXX above), and is not incidental to the supply of the leased accommodation, and since no exemption applies, the supply of either Communication Package is a taxable supply. Further explanation is set out below.

This ruling is 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 this ruling 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

A. The supply of either Communication Package is a separate supply from the exempt supply of the leased accommodation:

Policy Statement P-077, Single and Multiple Supplies (copy enclosed), sets out our administrative policy as to whether two or more goods or services provided in one transaction constitute one supply or separate supplies.

In the present case, the issue is whether each Communication Package is a separate supply from the leased accommodation, or a composite part of that supply. As outlined in P-077, where the essential nature of the transaction (for example, the terms of the agreement) leaves the issue unclear, the factors summarized below should be used in making this determination.

-    whether each element is, of itself, in the context of this transaction, of any use to the customer;

-    whether the provision of a particular element is contingent on the provision of another element; and

-    whether the customer is aware of each element, in detail.

To summarize the results of our analysis using these factors, it was apparent that even though the Communication Packages depended on the supply of the accommodation, the accommodation (and other services) could easily be of use without the provision of the Communication Packages. This, then, indicated that the accommodation and other services are separate supplies from the Communication Packages.

With respect to the second factor above, since the Communication Packages were available as options, it could not be said that the provision of the accommodation and the Communication Packages were contingent upon each other. Concerning the final factor, it is apparent that the residents were made well aware of the Communication Packages, since they were well described as options in the lease agreement.

Accordingly, all three factors set out above support the finding that the Communication Packages are separate supplies.

B. The supply of Communication Packages is not incidental to the supply of the accommodation:

Section 138 of the Excise Tax Act provides that a particular supply may be deemed to form part of another supply where it is reasonable to regard the particular supply as incidental to the other supply, and where both supplies are made for a single consideration.

Our policy on determining whether a particular supply is incidental to another is set out in Policy Statement P-159R1 "Meaning of the Phrase "Reasonably Regarded as Incidental." (copy enclosed). In the present situation, it is our view that the Communication Packages and the accommodation are not provided for a single consideration. That is, separate consideration is payable for each of the Communication Packages. This is evident from the fact that it is possible to purchase either Package, or indeed neither, and, if purchased, the specific consideration for the Package is set out in the lease agreement. Accordingly, since separate consideration is charged for the Communication Packages, the provisions of section 138 cannot apply to deem them to be part of the supply of accommodation. XXXXX

C. The supply of each Communication Package is a taxable supply:

Pursuant to subsection 123(1) of the Excise Tax Act, a "taxable supply" is defined as "a supply that is made in the course of a commercial activity" and a "commercial activity" is defined, in part, as "a business carried on ... except to the extent to which the business involves the making of exempt supplies. ..." On the basis that the Communication Packages are separate supplies, and there are no apparent exemptions that would apply, these supplies would be taxable supplies as defined under subsection 123(1). Accordingly, it is our ruling that the Facility, as a GST registrant, is required to collect and remit GST on the fees paid for the Communication Packages.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-9587.

Yours truly,

Michael Place
Real Property Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate

Encl.: (2)

Legislative References:
NCS Subject Code(s):	R-