For discussion purposes only - Draft GST/HST Policy Statement, Research Activities Undertaken by Hospital Authorities – Entitlement to Rebates and Tax Status of Services

GST/HST Notices - Notice 274
May 2012

This publication is being disseminated by the Canada Revenue Agency (CRA) in draft form for comments or suggestions, which should be sent by September 30, 2012 to the following:

DRAFT GST/HST POLICY STATEMENT

Research Activities Undertaken by Hospital Authorities – Entitlement to Rebates and Tax Status of Services

Legislative references: Excise Tax Act: Subsection 123(1), definitions of "charity", "hospital authority", "non-profit organization", "public college", "public institution", "public service body", "school authority" and "university", sections 165 and 169, subsections 259(1) definitions of "charity", "external supplier", "facility operator", "non-creditable tax charged", "qualifying non-profit organization", "selected public service body", "specified percentage", "specified provincial percentage", subsections 259(3), 259(4.1), (259(4.2), 259(4.21), 259(7), section 1 of Part V.1 of Schedule V and section 2 of Part VI of Schedule V to the Excise Tax Act and the Public Service Body Rebate (GST/HST) Regulations.

National coding system file number: 11880-7

Effective date: April 1, 2012

Please note that the following policy statement, although correct at the time of issue, may not have been updated to reflect any subsequent legislative changes.

Issue

This policy sets out the Canada Revenue Agency's (CRA) position concerning the eligibility of hospital authorities to claim an 83% rebate of the GST and the federal part of the HST as well any corresponding rebate of the provincial part of the HST for the non-creditable tax charged that is incurred by hospital authorities in the course of carrying on research activities.

In general terms, "non-creditable tax charged" means the GST/HST paid or payable on purchases for which no input tax credits, rebates, refunds or remissions under any Act of Parliament may be claimed, other than a public service body rebate.

Decision

Research activities that are related to care provided to inpatients and outpatients of a public hospital are considered to be activities engaged in by a hospital authority in the course of operating a public hospital. To the extent that research activities by a hospital authority are related to patient care in a public hospital, the non-creditable tax charged on property and services consumed, used or supplied in the course of these activities will generally be eligible for an 83% rebate of the GST and the federal part of the HST. Research activities by a hospital authority that are related to patient care in a public hospital will also be eligible for the corresponding rebate of the provincial part of the HST which varies from 0% to 87%. For each participating province (namely, the provinces of British Columbia, New Brunswick, Newfoundland and Labrador, Nova Scotia, or Ontario) in which the hospital authority is resident, the rebate is only available to the extent (expressed as a percentage) to which it intended, at the relevant time, to consume, use or supply the property or service in activities carried on in the course of operating a public hospital in the participating province.

It will be a question of fact whether particular research activities conducted by hospital authorities are related to patient care and thus eligible for an 83% rebate of the GST and the federal part of the HST and corresponding rebate for the provincial part of the HST. This policy provides further direction to hospital authorities by setting out guidelines on the application of the hospital authority public service body rebate to research activities carried on by these organizations.

Example s of research activities that are, and are not, considered to be related to patient care for purposes of the public service body rebate can be found under the heading "Research and activities of operating a public hospital".

Discussion

The Act defines a "hospital authority" in subsection 123(1) as an organization that operates a public hospital and that has been designated by the Minister of National Revenue as a hospital authority. GST/HST Memorandum 25.2, Designation of Hospital Authorities sets out the administrative guidelines and eligibility criteria that must be met in order for an organization to be designated as a hospital authority.

Under subsection 259(4.1), a hospital authority that is a public institution ^{Footnote 1} or qualifying non-profit organization ^{Footnote 2} may claim an 83% public service body rebate of the non-creditable GST charged and non-creditable federal part of the HST charged that is related to property or services that it intended to consume, use or supply in the course of operating a public hospital. If the hospital authority is resident in a participating province, it may also be entitled to a corresponding rebate for the non-creditable provincial part of the HST charged that it incurs in this activity in that participating province.

As noted in the chart below, a hospital authority's entitlement to a rebate of the non-creditable provincial part of the HST charged that it incurs in the course of these activities will depend on the participating province.

Public Service Body Rebate Rates for Hospital Authorities in a
Participating Province

GST or federal part of the HST	Provincial part of the HST
	Resident in Nova Scotia	Resident in New Brunswick	Resident in Newfoundland and Labrador	Resident in Ontario	Resident in British Columbia
83%	83%	0%	0%	87%	58%

GST/HST Policy Statement P-245, Determination of "…activities engaged in by the person in the course of operating a public hospital" for purposes of the 83% public service body rebate for hospital authorities was released on August 17, 2005 to provide guidelines to assist hospital authorities in applying for this rebate.

Apportionment of rebates by hospital authorities

A hospital authority is a selected public service body ^{Footnote 3}. A selected public service body that is also a public institution or qualifying non-profit organization is required under subsections 259(4.1), (4.2) and (4.21) and the Public Service Body Rebate (GST/HST) Regulations to apportion rebates for its non-creditable tax charged, depending on the nature of its activities.

A hospital authority that is a public institution or qualifying non-profit organization is generally entitled to claim a 50% rebate of its non-creditable GST and federal part of HST charged. Under subsection 259(4.1), it may claim an additional 33% rebate (totalling 83%) for certain activities undertaken in its capacity as a hospital authority, such as activities carried on in the course of operating a public hospital.

In addition, a hospital authority that is also a public institution or qualifying non-profit organization resident in a participating province may be entitled to a partial rebate of the non-creditable provincial part of the HST charged.

What is a "public hospital" for purposes of the Act?

For purposes of the Act, a public hospital must:

• provide the services of medical practitioners, nursing staff and health professionals who are available at all times to carry out the examination and diagnosis of patients and the provision of treatment and care
• utilize health care personnel and equipment to provide health care services to the general public;
• admit patients who are assigned beds in order to receive diagnostic services, treatment and inpatient services to ensure the patients' necessities of life and comfort, such as nursing services on a 24-hour basis and food and laundry services;
• receive operational and capital funding from provincial or territorial governments for the provision of publicly insured patient services, and
• be operated under provincial or territorial laws respecting hospitals.

A facility that does not have all the above characteristics is not considered to be a public hospital for purposes of the definition of hospital authority and the entitlement to the 83% rebate of the GST and federal part of the HST and corresponding rebate of the provincial part of the HST for tax incurred in activities of operating a public hospital. However, other public service body rebates may be available for the non-creditable tax charged in the course of operating the facility such as the 50% rebate of the GST and federal part of the HST and corresponding rebates for the provincial part of the HST for public institutions or qualifying non-profit organizations.

What are activities of operating a public hospital for purposes of the Act?

The CRA considers that "activities of operating a public hospital" means activities related to patient care.

For purposes of the Act, a "patient" is an individual who receives care and treatment in a public hospital and who appears in the hospital's registry or other official record as a patient. This includes both inpatients and outpatients of the hospital.

See GST/HST Policy Statement P-245 for more information on the CRA's policy concerning activities of operating a public hospital for purposes of the public service body rebate.

Application of the GST/HST to research services

Whether research services are subject to the GST/HST depends on the person who is providing the services.

Research services provided by individual researchers, non-profit organizations (including qualifying non-profit organizations that have been designated as hospital authorities) or private sector corporations are generally subject to the GST/HST. Therefore, individual researchers, non-profit organizations and private sector corporations that provide taxable research services must charge, collect and remit the GST/HST on the consideration paid or payable for their services if they are registered, or required to be registered for the GST/HST.

Research services supplied by charities and by public institutions, such as hospital authorities or universities that are registered charities are exempt.

Recovering the GST/HST

A hospital authority is entitled to claim rebates for the non-creditable tax charged in the course of supplying exempt research services.

Specifically, a hospital authority that is a public institution or qualifying non-profit organization that is resident in a non-participating province is generally entitled to claim a 50% rebate of its non-creditable GST or federal part of the HST charged. As it is a selected public service body, it is entitled under subsection 259(4.1) to claim an additional 33% rebate of the non-creditable GST or federal part of the HST charged with respect to certain activities undertaken in its capacity as a selected public service body, which includes activities engaged in the course of operating a public hospital.

Accordingly, a hospital authority that is a public institution or qualifying non-profit organization that is resident in a non-participating province may claim an 83% rebate of the non-creditable GST or federal part of the HST charged that it incurs in carrying on research activities in the course of operating a public hospital.

Similarly, a hospital authority that is a public institution or qualifying non-profit organization resident in participating province will be entitled to a 50% rebate of the non-creditable GST or federal part of the HST charged that it incurs. As it is a selected public service body, it will be entitled to an additional 33% rebate (totalling 83%) of the non-creditable GST or federal part of the HST charged it incurs in carrying on research activities in the course of operating a public hospital. It may also be eligible for the corresponding rebate of the provincial part of the HST which varies from 0% to 87%. This rebate is available to the extent (expressed as a percentage) to which the hospital authority intended, at the relevant time, to consume, use or supply the property or service in activities carried on in the course of operating a public hospital in the participating province. Refer to the chart in the section "Discussion".

Rebates for purchases made for other organizations

Different rules apply if a selected public service body acquires or imports a property or service primarily for consumption, use or supply in exempt activities carried on by another selected public service body. In this situation, the rebate rate that the purchasing selected public service body may use is the rebate rate that applies to the body that will primarily be using, consuming or supplying that property or service.

Accordingly, a hospital authority that acquires or imports property or a service primarily for consumption, use or supply in the course of exempt activities engaged in by another selected public service body, will use the rebate rate of that other organization.

Note: Charities are not selected public service bodies; therefore, the rebate rate for the non-creditable tax charged on property or services acquired by a charity remains 50% for the GST and federal part of the HST paid or payable even if property or services are acquired for consumption, use or supply primarily by a hospital authority or other selected public service body. A charity will also only be entitled to claim a rebate of the provincial part of the HST paid or payable using the applicable rebate rate for charities in these situations.

Research and activities of operating a public hospital

Health research in Canada involves a variety of partners, methodologies and stages of development. The ultimate aim of this research is to preserve and enhance health, to prevent illness, to advance diagnostic tools, treatments and innovations, to relieve suffering, and to improve the quality of life and wellness of individuals. However, not all aspects of health research carried on by hospital authorities are eligible under the Act for the 83% rebate of the GST and the federal part of the HST and for a corresponding rebate of the provincial part of the HST.

It is the CRA's position that activities of operating a public hospital means activities related to patient care. Therefore, for research activities to be eligible for these rebates, they must be related to care that is provided to patients who have been admitted to a public hospital operated by the hospital authority. This means patients currently in hospital, as well as outpatients.

Examples of research activities by hospital authorities that are related to patient care and eligible for an 83% rebate of the GST and federal part of the HST and a corresponding rebate of the provincial part of the HST in the participating provinces

While the CRA appreciates that there are no clearly defined categories of health research, the research activities by hospital authorities that will generally qualify for this rebate are those undertaken by a hospital authority with the goal of improving the diagnosis and treatment of its inpatients and outpatients.

This may include the following types of research conducted in the course of providing patient care:

• application of knowledge gained through basic and applied research to conduct research with patients by capitalizing on the discoveries of biomedical research and translating them to clinical settings;
• translation of laboratory based discoveries into new approaches to the prevention, diagnosis, monitoring and treatment of disease or injury of patients;
• discovery, development, implementation and evaluation of:
  • diagnostic procedures,
  • surgical innovations,
  • therapeutic interventions,
  • rehabilitation strategies;
  • skill sets,
  • tools,
  • medical devices,
  • drugs and biologicals such as inpatient and outpatient drug trials, cancer chemotherapy trials, etc.;
• investigations, observational studies and clinical trials;
• discovery of new applications of technologies for patient care;
• research in outbreaks of new infections, "superbugs" or hospital acquired infections to recognize, understand, prevent and manage such outbreaks;
• research into effective communication between patients and health professionals to improve symptom management and quality of life;
• development of decision aids for patients facing surgery or other treatments;
• patient safety research, research into adverse events and near miss incidents;
• research into effective post-operative care of patients, including telephone or email monitoring for follow up care, and
• research into community supports, residential services and supportive employment for outpatients with mental illness, substance abuse or other disorders.

In addition, the following activities would be eligible for this rebate but only to the extent that they are carried on in the course of research related to providing patient care:

• developing and advancing techniques and strategies for knowledge translation;
• sharing and dissemination of research results, including lectures, seminars, conferences, scientific reviews of discoveries, publications, etc.;
• data collection and management including privacy and protection measures;
• activities relating to the transfer of developed knowledge and technologies to the marketplace, obtaining copyrights, patents, trademarks and the licensing of intellectual property rights;
• activities of peer review, ethical or advisory boards overseeing research;
• financial administration and accounting services;
• administration of grants and awards;
• regulatory submissions;
• research libraries;
• record keeping;
• housekeeping services;
• maintenance services and custodial services;
• materiel and facilities management;
• security services; and
• recruitment, staffing and human resource activities.

Examples of research activities by hospital authorities that are not related to patient care and are generally eligible for a 50% rebate of the GST and federal part of the HST and corresponding rebate of the provincial part of the HST in the participating provinces

• studies that do not have a diagnostic or therapeutic orientation;
• basic biomedical research to explore fundamental biological processes underlying health and disease in humans;
• studies to understand normal and abnormal human functioning at molecular and cellular levels;
• preclinical work, molecular or cellular level research not related to patient care such as identification of genes, genetic interactions and gene expression patterns, analyses of proteins, enzymes etc.;
• basic research in human diseases or other disabilities involving model organisms (yeast, worms, fruit flies, etc.);
• development of animal models of human disease;
• contract research where the research is undertaken for the purpose, and in the manner determined by the contractor – for example, clinical trials, technology assessments or other market research services under contractual arrangements with biotechnology or pharmaceutical firms;
• consulting services provided by researchers, clinicians or other staff members of the public hospital to private sector organizations;
• studies in the organizational structures and processes of health care;
• population health based studies such as studies of societal determinants or psychosocial factors affecting population health;
• research in effective policy development, analyses of the impact of legislation, health institution reorganizations, health system management, economics and community planning and design on public health;
• analyses of health care systems and health service utilization (quality, cost analyses, patient access, patient flow and wait times) to improve the efficiency and effectiveness of health professionals and health care systems;
• environmental or ecosystem assessment research not related to patient care, for example, research into toxins found in ground water; and
• research in ways to recruit and retain health professionals across Canada

Footnotes

Footnote 1

A public institution is defined in subsection 123(1) of the ETA to mean a registered charity for purposes of the Income Tax Act that is also a school authority, a public college, a university, a hospital authority, or a local authority determined to be a municipality. Therefore, a hospital authority will be a public institution if it is a registered charity for purposes of the Income Tax Act.

Return to footnote 1 referrer

Footnote 2

A hospital authority will be a qualifying non-profit organization if it is a non-profit organization that receives at least 40% of its revenue from government. For more information, see Guide RC4081, GST/HST Information for Non-Profit Organizations.

Return to footnote 2 referrer

Footnote 3

A selected public service body is one of the following:

• a hospital authority;
• a school authority that is established and operated otherwise than for profit;
• a university that is established and operated otherwise than for profit;
• a public college that is established and operated otherwise than for profit;
• a municipality;
• a facility operator; or
• an external supplier.

Return to footnote 3 referrer

Date modified:

2012-05-14