20 October 2003 GST/HST Ruling 46713 - Application of the GST/HST with Respect to Certain Real Property Transactions

Dear XXXXX:

We refer to your letter XXXXX (with attachments), and the response from the Municipalities and Health Care Services Unit of this Directorate XXXXX. As indicated in that letter, three of the ruling requests in your letter were forwarded to our unit for our response. As discussed in our telephone call XXXXX, at this time you want us to restrict our response to the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the XXXXX (described below) as it relates to certain real property transactions.

XXXXX

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

Statement of Facts

Our understanding of the facts is as follows:

1. S Ltd. built a XXXXX facility containing XXXXX residential units on XXXXX floors in XXXXX.

2. S Ltd. leases the facility to OPCO under a XXXXX year lease.

3. Both S Ltd. and OPCO are private, for-profit companies.

4. OPCO uses the facility to provide XXXXX living environment for seniors. It operates the Centre under the name "XXXXX " to provide accommodation, meals, and limited support services, but not skilled nursing care, to seniors. OPCO has been operating XXXXX since XXXXX[.]

5. XXXXX XXXXX "the Centre") offers individualized care that integrates independence with a personalized program of assistance in daily living activities. Individual support programs range from light support to daily comprehensive care assisting residents with bathing and medications. The principles behind the Centre's operations include XXXXX.

6. The residential units at the Centre are private apartments consisting of XXXXX, XXXXX bedroom and XXXXX bedroom apartments that range in size from about XXXXX to XXXXX square feet. Each unit includes a four-piece bathroom, kitchenette containing a counter, sink, refrigerator and cabinets, and individually controlled heating and cooling systems.

7. OPCO supplies basic accommodation, meals and services to the residents under an agreement entitled XXXXX (the "Agreement"). Under this Agreement, there are XXXXX residency programs that may be selected: what you referred to as XXXXX (hereinafter referred to as "Program A") and XXXXX (hereinafter referred to as "Program B"). The residents in Program B are located in a separate area of the Centre. The provisions of the Agreement as they relate to these programs are as follows:

(a) The initial term of the Agreement is based on a XXXXX year tenancy. With the exception of the one-time XXXXX, the consideration for this supply is payable monthly and the fees are based on a daily amount. Utilities are included in the daily amount; however the resident is responsible for telephone and cable television hookup and fees. After the XXXXX year, the Agreement continues on a month-to-month basis. A resident may terminate the Agreement for any reason on one month's written notice to OPCO. The Agreement may also be terminated where a resident has health care needs that cannot be addressed at the Centre or for other reasons set out in the Agreement.

(b) The accommodation provides a resident with the use of an apartment and the property of OPCO located in the apartment, such as wall-to-wall carpeting, window coverings, a closet or wardrobe space, a small refrigerator and cabinet space.

(c) A resident may furnish the apartment with his or her own furniture and use his or her own minor electrical appliances and special equipment, such as televisions and radios.

(d) A resident is responsible for the cost of repairing, cleaning, or replacing the carpet in the resident's suite should it be damaged.

(e) Upon the consent of OPCO, a resident may be allowed to keep a pet in his or her suite.

(f) There is a limit to the care and services that OPCO can provide. If a resident requires certain care or services that OPCO is not able to provide pursuant to applicable local or provincial regulations, the resident may terminate the agreement with OPCO.

(g) Common areas available for use by residents of the Centre include a main dining room, a private dining room for guests, bistro lounge, television lounge, entertainment and activity room, living room, parlour, sunroom, library, sun porches, verandas, outdoor gardens and pathways, on-site hair salon and barber shop, laundry rooms and public restrooms. The Centre also includes areas for use by OPCO's staff in the administration of the facility.

(h) All residents receive the following basic amenities:

i. The use of common areas of the Centre, which are available for the use and enjoyment of all residents. The common areas are hallways, walkways, meeting rooms, activity rooms, dining rooms, open common spaces located within the Centre, and other areas noted in Fact 7(g) above;

ii. The provision of restaurant-style dining services for three meals daily that are served in the dining room and availability of snacks 24-hours per day;

iii. Daily housekeeping services, such as making the bed, tidying up the room and removing the trash;

iv. Weekly housekeeping services, such as vacuuming and dusting, cleaning the bathroom and kitchenette, and changing the bed and bath linens;

v. Weekly personal laundry, including pick-up and delivery, but not including dry-cleaning services;

vi. Transportation in the Centre's bus or other vehicle as scheduled by OPCO for shopping and other community services and activities;

vii. A monthly wellness assessment by a licensed nurse, which includes complete vital signs analysis, assessment of weight, mental and emotional status, XXXXX eating and sleeping patterns, personal hygiene, nutritional status, fluid balance, and bladder and bowel functions. The wellness assessment is not a substitute for a health care provider's report or the requirement that the resident have a personal physician;

viii. Regularly scheduled social, educational, religious, recreational and wellness programs;

ix. An emergency signalling device that may be activated from the bathroom and sleeping areas of each apartment. This device sends a message to a staff member who can request emergency services, such as 911 services, available in the area. The emergency medical services are not supplied by OPCO and any costs related to these services are borne by the resident, and

x. At least two staff members are on duty 24-hours per day.

8. In addition to these XXXXX residency programs, there are various optional programs that provide other goods and services supplied by OPCO, or arranged by OPCO, which are available to the residents for a separate consideration. Briefly, these programs are:

(a) The XXXXX, an optional program which provides additional support services and is available to residents in Program A;

(b) The XXXXX, an optional program which provides for the management of the resident's medications and is available to residents in Program A; and

(c) Additional Goods and Services, which involve a variety of optional goods and services that residents may purchase.

9. Potential residents of the Centre are not required to demonstrate their needs in advance of moving to the Centre. An individual's decision to move to the Centre is made at his or her discretion.

10. Before moving into the Centre, the individual must pay the one-time XXXXX for the initial set-up and maintenance of the care and services package that applies to the residency program that was selected. This fee is non-refundable. However, if the Agreement is terminated prior to the individual moving into the Centre or receiving any assisted living services, OPCO will refund the fee paid.

11. The set-up of the care and services package involves a physical and mental assessment of the individual by a licensed registered nurse, who is an employee of OPCO. The purpose of the assessment is to ensure that the Centre can appropriately meet the individual's needs and personal interests. This information is used to determine the level of supervision and assistance that the individual requires to ensure that the individual's needs are not outside the scope of what the Centre can provide. The assessment also assists OPCO in tailoring meals and social programs to meet the individual's needs.

12. Following the initial assessment, the registered nurse develops a personalized care and services plan for the resident, which is provided to OPCO and the resident's family members and physician. The registered nurse reviews and updates the services care plan on a monthly basis.

13. The duties of the registered nurse are limited to the periodic review of the care and services plan and supervision of the distribution and administration of medications. Residents who require regular nursing care have to obtain the services of a private nurse from other sources.

14. You advised that the Centre is not a nursing home and it is not subject to provincial regulation governing long-term care facilities. You further advised that OPCO complies with the provisions of the XXXXX because it operates a residential facility (i.e., the Centre) that is intended to be occupied by persons for the purpose of receiving care services, including assistance with the activities of daily living, as described in the statutory definition of XXXXX in that Act.

Rulings Requested

Ruling Requests XXXXX set out in your letter XXXXX were addressed XXXXX. As stated above, we will be addressing only the status of the lease of that part of the Centre from S Ltd. to OPCO that relates to Program B and S Ltd.'s input tax credit (ITC) eligibility with respect to that part of the Centre leased by S Ltd. for the purpose of OPCO's supply of Program B. The rulings requested are as follows:

1. If OPCO is making an exempt supply under section 2 of Part II or section 2 of Part IV (both of Schedule V to the Act), whether the lease by S Ltd. to OPCO of that part of the Centre used to operate Program B is a taxable supply.

2. If the Lease by S Ltd. to OPCO of that part of the Centre that is used to operate Program B is a taxable supply, whether S Ltd. may claim input tax credits to recover the tax that is required to be accounted for under the self-supply provisions of section 191 of the Act on the first use of that part of the Centre.

Rulings Given

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

1. The lease of that part of the Centre from S Ltd. to OPCO that is used by OPCO to operate Program B is not the lease of a residential complex and is not exempt under section 6.1 of Part I of Schedule V to the Act. Rather, that supply is subject to tax.

2. With respect to that part of the Centre that is used to operate Program B, there is no self-supply under section 191. S Ltd. is entitled to input tax credits with respect to the construction of that part of the Centre that is used to operate Program B.

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 these rulings provided that none of the above issues is currently under 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

Ruling 1

XXXXX we concluded that the supply of Program B was exempt under section 2 of Part II of Schedule V to the Act. We further concluded that that part of the Centre operated by OPCO and used to supply Program B is a health care facility and that "a health care facility for purposes of the [Act] is not a residential complex but rather a facility operated for the purpose of providing care services".

Section 6.1, in part, exempts the lease of certain property that the lessee uses to make exempt supplies under section 6 of Part I of Schedule V to the Act. The supplies of Program B by OPCO are exempt under section 2 of Part II of Schedule V and not under section 6 of Part I of Schedule V. As such, section 6.1 does not exempt the supply of that part of the Centre from S Ltd. to OPCO that is used by OPCO in making supplies under Program B and that supply is subject to tax.

Ruling 2

With respect to that part of the Centre that is not a residential complex, S Ltd. is entitled to input tax credits on the construction of that part of the Centre and will be eligible for input tax credits with respect to the ongoing expenses of the lease of that part of the Centre, subject to the general provisions of the Act. The self-supply rules in section 191 will not apply to that part of the Centre that is not a residential complex, as the rules in section 191 pertain only to real property that is a residential complex.

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 & Real Property Division
Excise and GST/HST Rulings Directorate