8 April 2003 GST/HST Ruling 38750 - Sale of a Hospital

Dear XXXXX:

Thank you for your letter XXXXX (with attachments), concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the sale of a XXXXX hospital.

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

Statement of Facts

Our understanding of the facts and transactions is as follows:

1. XXXXX (the Vendor) acquired certain real property situated at XXXXX XXXXX. The property was acquired by the Vendor in an arm's length transaction as a fully operational XXXXX hospital, governed by the [(]XXXXX). At the time of purchase, approximately XXXXX patients were registered in the hospital and these patients remained in the hospital after the purchase.

2. In XXXXX, the Vendor subdivided the property and sold XXXXX residential lots that were created as a result of the subdivision. Approximately XXXXX acres of land including XXXXX structures and XXXXX (the Property) were retained by the Vendor. One of the structures was a building that was used as the hospital and was capable of accommodating approximately XXXXX individuals. The other structures were a XXXXX and a XXXXX that covered a XXXXX.

3. During the XXXXX, some changes were made to the hospital when an existing bathroom on the first floor was enlarged and a bathtub was installed. This expansion required an exterior wall of the hospital to be extended. Other than this expansion, only general maintenance and upkeep of the Property has been done in the period of time that the Vendor owned the Property.

4. The Vendor operated the hospital under a licence granted under the XXXXX from the time it was acquired until XXXXX, at which time the XXXXX ordered the hospital closed. Prior to closure, the Property was used solely as a XXXXX hospital and patients thereof generally stayed in the hospital for years.

5. From XXXXX to XXXXX, the Property sat vacant and no activity was carried on from the Property during this time.

6. On XXXXX, the Property was sold under a contract entered into between the Vendor and XXXXX directed that title of the Property be in the name of XXXXX (the Purchaser).

7. The Vendor has never been registered for the GST/HST, has never made taxable supplies and has never claimed input tax credits in respect of the Property or otherwise. As such, no properties of the Vendor were acquired for use in commercial activities. The Vendor is not a "public service body" as that term is defined in the ETA. The Purchaser is registered for the GST/HST.

8. The sale also included items of tangible personal property including beds, bedding, hospital equipment, washers, dryers, stoves and refrigerators (the TPP). Certain items you have classed as personal property (e.g. window coverings) may form part of the real property and hence the sale of such items would have the same tax status as the sale of the Property. We will assume that the sale of the TPP is a separate supply from that of the Property and is not incidental to that supply.

Rulings Requested

1. You are requesting confirmation that the sale of the Property from the Vendor to the Purchaser is not subject to the GST.

2. You are requesting confirmation that the sale of the TPP from the Vendor to the Purchaser is not subject to the GST.

Rulings Given

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

1. The sale of the Property from the Vendor to the Purchaser is subject to the GST at 7% of the value of consideration for the supply.

2. The sale of the TPP from the Vendor to the Purchaser is not subject to the GST.

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 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

Section 2 of Part I of Schedule V to the ETA exempts the sale of a residential complex or an interest therein made by a person who is not a builder of the complex (or if the complex is a multiple unit residential complex, the builder of an addition thereto) unless the person claimed an input tax credit in respect of the last acquisition of the complex or in respect of an improvement to the complex since it was last acquired. (There is another exception to the exemption in paragraph 2(b), however that exception is not relevant to this case.)

The definition of "builder" is provided in subsection 123(1). The Vendor is not a builder in respect of the Property. Further, the Vendor has never claimed an input tax credit in respect of the Property or in respect of an improvement thereto. The only issue left to be decided in determining whether the exemption in section 2 applies is whether the Property, or any part of it, was a residential complex when it was sold by the Vendor.

"Residential complex" is defined in subsection 123(1). Paragraph (a) of the definition, the only relevant paragraph to the case at hand, provides that a residential complex is that part of a building in which one or more residential units are located, together with certain common areas of, appurtenances to, and land subjacent and immediately contiguous to the building.

"Residential unit" is defined in subsection 123(1) as follows:

(a) a detached house, semi-detached house, rowhouse unit, condominium unit, mobile home, floating home or apartment,

(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) is supplied by way of lease, licence or similar arrangement for the occupancy thereof as a place of residence or lodging for individuals,

(f) is vacant, but was last occupied or supplied as a place of residence or lodging for individuals, or

(g) has never been used or occupied for any purpose, but is intended to be used as a place of residence or lodging for individuals.

As such, the definition is composed of a "structural" component as described in paragraphs (a) to (c) and a "functional" component as described in paragraphs (d) to (g). To be considered a residential unit in this case, the room in the hospital must meet one of the "structural" components described in paragraphs (a) to (c) as well as one of the "functional" components in paragraphs (d) to (g).

As to the functional requirements in paragraphs (d) through (g) of the definition, it appears that in order for the rooms in the hospital to fall within the definition at the time the Vendor sold the Property, the rooms would have to fit within paragraph (f). The question therefore is whether the rooms in the hospital were last occupied or supplied as a place of residence or lodging for individuals.

Generally, in order for a suite or room in a residence for individuals to be a residential unit, one must consider the use or intended use for which the person uses the room or for which the supplier supplies the room. It is the position of the CCRA that for the purposes of the definition of "residential unit" if more than one use or intended use of a room is possible, it will be necessary to consider the primary use for which the person occupies the room.

A review of the XXXXX and the Regulations thereto provides assistance in determining the purpose of a person's stay at a XXXXX hospital.

•   Pursuant to XXXXX the XXXXX, a patient of a XXXXX hospital must be under the active care of a legally qualified medical practitioner in order to be admitted to or treated in a XXXXX hospital. It is our understanding that patients are only admitted to a hospital on the referral of a physician. This indicates that the primary purpose for which a person stays in a XXXXX hospital is to obtain medical treatment.

•   XXXXX Accordingly, individuals are at the hospital to receive medical care rather than simply being there as a place to live.

•   XXXXX, no one can use a house as a XXXXX hospital unless the person is licenced under the XXXXX. This is more restrictive than a person who supplies only residential accommodations who do not ordinarily face such a licensing requirement.

•   XXXXX provide that every house that is a XXXXX hospital must be classified into one of the types of hospital set out in that section. (The types of hospital set out in that section are a medical hospital, a surgical hospital, a maternity hospital, a medical and surgical hospital, a medical and maternity hospital, a general hospital, a hospital for nervous ailments or a hospital for alcoholic patients.) It is not clear as to which type of hospital this facility was classified as.

•   XXXXX provides that every XXXXX hospital must have a superintendent who is a legally qualified medical practitioner, a registered nurse, or a person whose qualifications are acceptable to the Minister. XXXXX requires interns of the hospital to be a member of the XXXXX. Hence, in most cases, at least some of the hospital administrators and staff are likely to possess certain medical qualifications. Further, XXXXX the XXXXX require hospital staff to consist of such graduate nurses and employees as are necessary to give adequate nursing care to the patients for which the hospital licence is granted. The caregivers therefore had to have a certain level of medical training to work at the facility.

•   XXXXX requires that every patient staying at a XXXXX hospital must have a record that lists the patient's usual place of residence and their diagnosis, among other information. This suggests that a patient will be in the hospital on a temporary basis and indicates that they must have a medical condition when entering the hospital in order to be accepted into the hospital.

•   XXXXX provides that a XXXXX hospital cannot not be used for any purpose other than the purpose in respect of which the licence is issued and purposes incidental thereto. You indicated that the Vendor's licence was not available.

•   It is not evident that the XXXXX or Regulations thereto prohibit the carrying on of medical operations. We are not aware of whether this particular hospital had the capabilities to carry out such operations.

Based on the foregoing, it is our position that this XXXXX hospital was established and operated to provide medical care for the patients staying therein, rather than a place of residence. As such, the rooms in the hospital in which the patients stayed were not residential units as defined in subsection 123(1). As there were no residential units in the Property, the Property would not be a residential complex and the exemption under section 2 of Part I of Schedule V to the ETA could not apply. Further, there are no other provisions that would exempt the sale of this Property.

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