Tax Court of Canada finds that funding under a government “service agreement” caused the HST self-supply rule to apply to the cost of a new seniors’ home rather than its lower FMV

The Appellant obtained the agreement of the Nova Scotia Department of Health to construct a replacement seniors facility for its aging existing facility, and concluded both a Development Agreement with the Department, which set out the terms upon which it was to develop the Facility, and a “Service Agreement” with the Department, which set out the services that the Appellant was to provide through the Facility and the payments that it would receive from the Department and the residents.

Although assisted–living facilities normally are subject to HST on their fair market value when substantially completed, CRA assessed on the basis of s. 191.1(2) effectively deeming the HST to be payable on most costs incurred, as these were higher than the new facility’s FMV. This provision very generally applied where the builder (the Appellant) received government funding "for the purpose of making residential units in the complex available to [seniors]."

In dismissing the Appellant’s appeal, Graham J indicated that the facts of this case were in all material respects identical to those in High-Crest, and that he agreed with the conclusions of Jorré J in that case. For instance, he agreed with Jorré J that “[s]o long as some portion of the total payments that the Department of Health made to the Appellant were made for the purpose of making residential units in the Facility available to seniors” the government funding test was met (para. 37). That was the case here given that the Service Agreement included accommodation in the required services, and the payments thereunder covered interest and principal under the mortgage financing.

Furthermore, it was not relevant to the tests in s. 191.1(2) that, after construction, the Appellant might be considered to be making a single supply of health care services to the residents.

Neal Armstrong. Summary of Windsor Elms Village for Continuing Care Society v. The King, 2023 TCC 58 under s. 191.1(2).