28 May 2004 GST/HST Interpretation 47263 - Status of Supplies of Narcotics Under the Excise Tax Act

Please note that the following document, although correct at the time of issue, may not represent the current position of the Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence.

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 certain aspects of the operations of XXXXX. I apologize for the delay in responding to your request.

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

Statement of Facts

On the basis of the information provided in your letter, the Service Agreement between XXXXX and the Ontario Ministry of Health and Long-Term Care (MOHLTC), the XXXXX, the MOHLTC Long-Term Care Facility Program Manual (LTCF Program Manual), the Ontario Nursing Homes Act and Regulations, our understanding of the facts is as follows:

Facts Relative to the Activities of XXXXX

1. XXXXX.

2. XXXXX.

3. For purposes of this application ruling, the long-term care facility, XXXXX will be referred to as XXXXX (the "Facility").

4. Long term care facilities in Ontario and access to them are regulated by the MOHLTC under the Nursing Homes Act (NHA) R.S.O 1990, Ch. N-7 and Ontario Regulation 832 (and other legislation).

5. Under the Service Agreement, (Service Agreement, XXXXX; Section 20.15 NHA) XXXXX is identified as the Operator of the Facility, who holds a licence or has statutory approval to operate XXXXX long-term care beds in accordance with the LTCF Program Manual, (The purpose of the LTCF Program Manual is to outline the care, program and service standards, criteria and expectations in providing quality care, service and programs to persons residing in long-term care facilities.) the Service Agreement and the Nursing Homes Act (the "NHA") and its Regulations. The LTCF Program Manual provides that the primary purpose of long-term care facilities is to continue to provide care and services to elderly persons who require services that are provided in a facility setting and whose needs cannot be met through in-home services. (TAB 0404-01, page 3, LTCF Program Manual)

6. The construction of the Facility was completed XXXXX. XXXXX claimed full input tax credits (ITCs) for the GST paid on the construction of the Facility. XXXXX also self-assessed the GST on the fair market value of the Facility and reported the tax on its XXXXX GST return.

7. XXXXX operates the Facility for the purpose of providing care and services to residents who have been determined to meet specific eligibility criteria (see Facts 9, 10 and 11). The specific care and services provided by XXXXX are noted in Fact 14.

8. For purposes of the NHA, the Facility is a "nursing home" (Subsection 1(1), NHA). The "Beds" are the long-term care facility beds operated by XXXXX under the Service Agreement, and the "Facility" is identified in the Service Agreement between XXXXX and the MOHLTC as the facility named XXXXX, in which the Beds are located. The long-term care facility excludes any part of the premises that will be used for purposes other than long-term care and which will not be used for the Beds being operated by XXXXX pursuant to the Service Agreement. (Section 1.1 of the Service Agreement defines "Services" to mean accommodation, care, services, programs and goods.

9. Community Care Access Centres (CCAC) established by the MOHLTC are the organizations responsible for managing access to both long-term care community and facility services in Ontario. A person wishing to apply for admission to a long-term care facility must, by law, (Section 20.1, NHA; section 129 to 138.1, Regulation 832; TAB 0502-01 LTCF Program Manual) apply through the CCAC for a determination as to eligibility for admission in accordance with provincially established criteria. The CCAC evaluation is independent of any other assessment of the person conducted by XXXXX. The LTCF Program Manual also outlines the role, objectives and functions of this placement service. In addition to determining eligibility for admission, the CCAC responsibilities are to authorize admission, priorize persons for admission, and manage the waiting list for admissions. (TAB 0502-01, page 1, LTCF Program Manual)

10. A person applying for admission to the Facility must be determined to be eligible for admission by the CCAC Placement Coordinator. Eligibility for admission to the Facility is based on an evaluation of the person's capacity for self-supervision and self-care by the CCAC Placement Coordinator, as well as his or her needs for 24-hour nursing care, assistance with activities of daily living, and daily supervision or monitoring of his or her activities.

11. Once approved by the CCAC as eligible for admission to a long-term care facility, the person applies directly to the facility or facilities of his or her choice, and the person's applications are forwarded to these facilities by the CCAC. In the case at hand, the CCAC forwards the person's application to XXXXX, and the decision to accept the person is made by XXXXX. (Subsection 20.1(14) of the NHA) Once XXXXX accepts the person's application, XXXXX adds the person's name to the waiting list for the Facility.

12. Once applicants are admitted to the Facility, XXXXX designs a care plan for each flowing from their evaluation by the CCAC. Applicants give consent to their plan of care prior to placement. Once an applicant becomes a resident, if there are changes in his or her health status, registered nursing care staff at the Facility notify the resident's attending physician of such changes so that the physician may change aspects of the resident's care. Residents also give consent to laboratory and diagnostic testing as deemed necessary by the physician at the Facility, and agree that medical information may be shared with the staff at the Facility.

13. The Facility is required to enter into a written admission contract with the resident. (TAB 0902-01, LTCF Program Manual) XXXXX. Pursuant to the terms of the Admission Contract, the resident understands and agrees that XXXXX provides a service for which a charge is levied. By signing the contract, XXXXX and the resident have entered into a fee for service business agreement. The Admission Contract is reviewed and renewed every year or as requested by either party.

14. XXXXX operates the Facility for the purpose of providing specific care and services to residents who have been evaluated by the CCAC as requiring the services provided at the Facility. The care and services provided by XXXXX at the Facility are listed in the Admission Contract as well as in Section D of your submission. XXXXX provides the care and services to all residents with no additional fees being charged to them for such care and services. XXXXX the Admission Contract lists the Facility's responsibilities in respect of the care and services to be provided to residents of the Facility. (TAB 0608-01 of the LTCF Program Manual also lists the Basic Services included in the charge for Basic Accommodation.) The care and services that the Facility is operated to provide are:

(a) Accommodation, which is a bed, located in a ward or private room.

(b) Nursing and personal care services involving 24-hour routines and care given by and under the supervision of a registered nurse or registered practical nurse. Nursing care includes providing restorative care, bladder and bowel care, and care of weak or paralysed limbs, as well as the administration of medication. In addition, XXXXX provides private multi-purpose and palliative care suites and services such as aromatherapy, therapeutic touch, and massage.

(c) Supervision and assistance with activities such as bathing, dressing, grooming, eating, and ambulating, and orientation activity programs for all residents and other activities.

(d) A Medical Advisor appointed by XXXXX who is on site to oversee care and services provided to residents, including monitoring the resident's health status, their transfer to and from hospital where needed, the resident's need for assistive or prosthetic devices, restorative care (e.g., physiotherapy, podiatry, dental) and other pertinent health and safety information.

(e) Medical supplies and nursing equipment necessary for the care of the resident, including care of skin disorders, continence care, infection control and sterile procedures.

(f) Medical devices, such as catheters, colostomy and ileostomy devices.

(g) Supplies and equipment necessary for personal hygiene and grooming, including skin care lotions and powders, shampoos, soap, deodorant, toothpaste, toothbrushes, denture cups and cleansers, toilet tissue, facial tissue, hair brushes, combs, razors, shaving cream, and feminine hygiene products.

(h) Equipment for the use of all residents, including wheelchairs, geriatric chairs, canes, walkers, toilet aids, and other self-help aids for the activities of daily living, including repairing wheelchairs and walkers.

(i) Coordinating nutritional care services, including preparation and service of three meals daily, snacks, special and therapeutic diets, nutritional supplements and special feeding devices as may be required by the resident, and making available snacks and meals on a 24-hour basis.

(j) Organizing social, spiritual, recreational and physical activities and programs, including related supplies and equipment, accommodating memorial services and receptions, and providing personal counselling such as palliative care grief counselling.

(k) In-house laundry services and labelling all resident's personal clothing.

(l) Maintenance of the facility, which includes the regular cleaning of the resident's rooms.

(m) Bedroom furnishings, such as beds, adjustable bed rails, chairs, adjustable beds, bedding and linen, mattresses with waterproof covers, pillows, and towels.

15. XXXXX makes available to the residents optional goods and services, which are not included in the package of care and services enumerated in Fact 14. XXXXX charges separate fees for the optional goods and services listed under "Personal Services" of XXXXX, which may include identification bracelets, personal wheelchairs, non-prescription drugs, foot care, certain types of transportation, private duty nursing, telephone, newspaper, dry cleaning, cable television services, mending of clothes, goods from the XXXXX, hairdressing and barber services, and special outings. XXXXX invoices the fees for these optional goods and services to the resident on an individual basis.

Facts Relative to Fees and Funding of the Activities of XXXXX

16. The fees payable by the residents to XXXXX for the care and services enumerated in Fact 14 are set by the MOHLTC and regulated under the NHA and its Regulations (Sections 21, 21.1, 22, NHA; sections 114 to 120, Regulation 832). Pursuant to section 21 of the NHA and sections 114-120 of O. Reg. 832, the MOHLTC restricts long-term care facilities from charging residents for care and services other than accommodation co-payment fees. The fees payable by the residents in respect of the care and services noted in Fact 14 are labelled by the MOHLTC as "co-payments". The fees for care and services at the Facility are as follows:

(a) Private rooms: $XXXXX per month.

(b) Standard rooms (i.e., Basic (Ward) accommodation): up to a maximum of $XXXXX per month.

17. XXXXX the Admission Contract lists services that may be requested by the resident and for which the resident is required to pay. These optional goods and services are not included in the basic charge paid by a resident.

18. Section 20.13 of the NHA provides that the MOHLTC shall make payments out of money appropriated by the Legislature, to a licensee of a nursing home, to assist in defraying the maintenance and operating costs incurred or to be incurred by the licensee in providing accommodation, care, services, programs and goods to residents of the nursing home. The MOHLTC funds long-term care facilities under a resident needs-based funding system. An annual funding entitlement for each facility is determined through a resident classification process that is completed each year by the MOHLTC. (TAB 0807-01, Classification of residents; TAB 0603-03, Subsidy Calculation Worksheet, LTCF Program Manual)

19. The LTCF Program Manual outlines the financial management provisions governing the operation of long-term care facilities, which include facility Service Agreement components, monitoring and reporting, financial policies, resident charges, basic and optional facility services and other assistance such as capital funding and supplementary funding. (TAB 0601-01 to 0611-05, LTCF Program Manual)

20. XXXXX receives funding for the costs of the construction and development of the Awarded Beds ("Awarded Beds" is defined in the Service Agreement to mean the long-term care facility beds awarded to the Operator and developed and constructed by the Operator under the Development Agreement.) as provided under section 3.1 of the Service Agreement.

21. In addition, section 3.2 of the Service Agreement provides that the MOHLTC shall provide to XXXXX for the operating services provided at XXXXX the amounts stipulated for the Envelopes as part of the Estimated Provincial Subsidy. Section 5.2 of the Service Agreement requires XXXXX to apply the funding for the Services in accordance with the Worksheet and the applicable legislation. Funding is divided into four categories:

(a) The "Nursing and Personal Care" envelope

(b) The "Program and Support Services" envelope

(c) The "Raw Food" envelope

(d) The "Other Accommodation" envelope

22. XXXXX shall not transfer funds between the Nursing, Program, and Raw Food envelopes. However, XXXXX may transfer all or any portion of the Other Accommodation envelope to any other envelope without MOHLTC approval.

23. You have provided copies of the "Long-Term Care Facility Payment Calculation Notice" pertaining to the XXXXX long-term care facility beds operated by XXXXX for the months of XXXXX. This Notice is a calculation worksheet that contains information relating to the four funding envelopes, as well as the "Municipal Capital Tax Allowance" and "Funding for Construction Costs". The per diem for these envelopes for XXXXX, which is representative of the manner in which the monthly instalments are determined, is summarized as follows:

Nursing & Personal Care
Program and Support Services
Raw Food
Other Accommodation
Total Per Diem
Multiplied by # of beds @ 30.416 days
Approved Expenditures

XXXXX

XXXXX

XXXXX

XXXXX

XXXXX

XXXXX

$XXXXX

Less basic resident revenue ^[x]*

XXXXX

XXXXX

XXXXX

Estimated provincial subsidy

$XXXXX

Municipal Capital Tax Allowance

XXXXX

Funding for Construction Costs

XXXXX

XXXXX

XXXXX

Recurring Monthly Payment

$XXXXX

XXXXX

$XXXXX

24. As illustrated in the table reproduced above, the net amount of provincial funding to cover the costs of providing care and services to the residents of the Facility is a combination of the per diem rate and monies collected from the residents themselves. The cost allocation is based on a resident classification process noted in Fact 18, which involves the review of care documentation for all Ontario long term care residents. Any changes in the classification of residents are reflected beginning April of the following year and combined with the provincial per diem rates, including the monthly "co-payment" made by residents toward their care, to establish the provincial funding amount for the year.

25. Adjustments to the recurring monthly payment, such as subsidies for orientation and extraordinary costs, may also be added to a particular month. XXXXX was added to XXXXX recurring monthly payment as an adjustment pertaining to lost resident revenue prior to full occupancy during the fill capacity period of the Facility.

Rulings Requested

1. Whether XXXXX (i.e., the Facility) is a health care facility within the meaning of section 1 of Part II of Schedule V and whether XXXXX is the operator of the health care facility.

2. Whether XXXXX is making multiple supplies as follows:

(a) a supply of nursing and personal care services, programming and support services and accommodation services (that is, food and dietary services, housekeeping and maintenance services) to the Crown in right of Ontario under a Service Agreement; and

(b) a supply of accommodation of standard or private rooms under an Admission Contract with residents.

3. If XXXXX is making multiple supplies,

(a) whether the supply under the Service Agreement with the Crown is a supply of an institutional health care service that is exempt under section 2 of Part II of Schedule V; and

(b) whether the supply under the Admission Contract with residents is a supply of a residential unit that is exempt under section 6 of Part I of Schedule V.

4. Whether XXXXX is eligible for the New Residential Rental Property Rebate (NRR) pursuant to section 256.2.

Rulings Given

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

1. & 2. For purposes of ruling requests 1 and 2, XXXXX activity of providing accommodation, meals, nursing and personal care, etc., to residents of the Facility that it operates is an exempt supply described in section 2 of Part II of Schedule V to the ETA. That is, based on the facts provided, we recognize XXXXX as the operator of the Facility and that the Facility meets the criteria of "health care facility" as defined in the ETA. Further, the accommodation, meals, nursing and personal care and other services described in Fact 14 are encompassed within the definition of "institutional health care service". As discussed in the Explanation below, the manner in which XXXXX supply of an institutional health care service rendered to a resident of the Facility is funded does not impact its status for GST/HST purposes or give rise to multiple supplies.

3. XXXXX is making a single supply of an institutional health care service under the Admission Contract. The funding provided by the MOHLTC to XXXXX pursuant to section 3.2 and 5.2 of the Service Agreement is a grant and not consideration for a supply. Consequently, section 6 of Part I of Schedule V is not applicable.

4. XXXXX is not eligible for the NRR pursuant to section 256.2 in respect of the Facility.

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 these rulings.

Explanation

The following explanation addresses the four main issues directly related to this ruling request. These are (1) activities of XXXXX at the Facility; (2) single supply of an institutional health care service; (3) grant or consideration for a supply (i.e., funding received by XXXXX from the MOHLTC); and (4) eligibility for the NRR pursuant to section 256.2. The explanation also addresses other issues arising out of this ruling request; namely the eligibility to claim input tax credits for the GST/HST payable on acquisitions for use in making exempt supplies and the tax status of the optional goods and services supplied to residents of the Facility.

On the basis of the facts provided, XXXXX, as the licensed operator of the Facility, is making a single supply of an institutional health care service rendered to residents of the Facility under the Admission Contract. The operating subsidy paid by the MOHLTC to XXXXX under sections 3.2 and 5.2 of the Service Agreement is to assist in defraying the maintenance and operating costs incurred or to be incurred by XXXXX in providing the institutional health care service, which consists of accommodation, care, services, programs and goods provided to residents of the Facility. It is our view that the operating subsidy is a grant and not consideration for a supply. Consequently, XXXXX is not eligible for the NRR as one of the conditions under section 256.2, that the builder make exempt supplies by way of lease, licence or similar arrangement included in section 6 of Part I of Schedule V that result in the person being deemed under section 191 to have made and received a taxable supply by way of sale of the complex, is not met.

1. Activities XXXXX at the Facility

The criteria with respect to paragraph (1)(c) of the definition of "health care facility" in Part II of Schedule V is as follows:

"(c) a facility, or a part thereof, operated for the purpose of providing residents of the facility who have limited physical or mental capacity for self-supervision and self-care with

(i) nursing and personal care under the direction or supervision of qualified medical and nursing care staff or other personal and supervisory care (other than domestic services of an ordinary household nature) according to the individual requirements of the residents,

(ii) assistance with the activities of daily living and social, recreational and other related services to meet the psycho-social needs of the residents, and

(iii) meals and accommodation."

This definition is describing a facility operated for the purpose of addressing the health and social needs of residents with limited physical or mental capacity to care for themselves by providing nursing and personal care and supervisory care according to their individual requirements, assistance with activities of daily living, personalized social and recreational activities, and meals and accommodation. The care, assistance, activities, meals and accommodation is accessible to the extent necessary by all residents and provided to each resident on the basis of his or her individual needs.

Based on the facts provided, the purpose for which XXXXX operates the Facility is to provide nursing and personal care to residents having limited capacity for self-supervision and self-care. The prospective residents have been independently evaluated by the CCAC as having limited capacity for self-supervision and self-care and nursing and personal care needs. The CCAC evaluation process identifies their capacities and needs, and the individualized care and services to be provided to the residents flow from this evaluation and are incorporated into the plan of care developed by XXXXX.

As noted in Fact 14, residents of the Facility are provided with nursing and personal care according to their individual requirements due to their limited capacity for self-supervision and self-care. Care is given under the supervision of qualified medical and nursing care staff, as well as other personal and supervisory care. We also note that a Medical Advisor has been appointed XXXXX to provide direction and supervision of the care given to residents. Residents are also provided with assistance with activities of daily living, social and recreational activities to meet their psycho-social needs, and meals and accommodation. Accordingly, all the criteria set out in paragraph (c) of the definition of "health care facility" in Part II of Schedule V are present in XXXXX activities.

The facts also demonstrate that accommodation, meals, nursing and personal care and other services provided by XXXXX and rendered to residents of the Facility constitute an "institutional health care service" as defined in section 1 of Part II of Schedule V. The provision of an institutional health care service to residents of the Facility is an exempt supply pursuant to section 2 of Part II of Schedule V.

2. Single Supply of an Institutional Health Care Service

For any given transaction, an evaluation of whether a person is making a single supply or multiple supplies must consider all relevant factors. Thus a transaction must be evaluated in its totality to determine whether it is in fact a single supply or whether multiple supplies exist. A determination of a single supply or multiple supplies would consider the overall context of the transaction rather than relying solely on any individual aspect of that transaction. The issue of single supply versus multiple supplies must be made on a case-by-case basis, and cannot be resolved solely by reference to the number of recipients. The relative weight to be given to each aspect of a transaction must be evaluated within the overall context of the transaction to determine whether the transaction constitutes a single supply or multiple supplies.

In our view, the context in which accommodation, meals, care and other services are rendered to residents of the Facility demonstrates that XXXXX is making a single supply of an institutional health care service, and the facility is an input to this supply. Accommodation is a necessary aspect of the institutional health care service that XXXXX renders to residents. For purposes of the ETA, an individual must be admitted to and be a resident of, the facility in order to receive the services enumerated in paragraph (c) of the definition of "health care facility".

It is clear from the facts provided that the purpose of being admitted to and lodged in the XXXXX Facility is to receive care and services. The accommodation, care and services are interconnected where each is an integral part of a composite whole. This is supported in part by the definition of "resident" in the Admission Contract XXXXX, which is indicative of the fact that the individual has been admitted to the Facility as evaluated by the CCAC in accordance with admission criteria established by the MOHLTC. Section 2 of Part II of Schedule V exempts this supply of accommodation, meals, care and other services provided in a health care facility to the residents of the facility.

Pursuant to the standards and criteria for resident care listed in the LTCF Program Manual, (TAB 0902-01, page 9 LTCF Program Manual) XXXXX is required to enter into a facility-specific written Admission Contract that describes the accommodation, care, services, programs and goods that will be provided to the resident and the obligation of the resident with respect to their responsibilities and payment for service. The resident receives all of the care and services in return for the basic fee payable by the resident as provided in the Admission Contract and the LTCF Program Manual. (TAB 0608-01, page 1 LTCF Program Manual)

By definition in the ETA, the provision of accommodation in a health care facility to residents of the Facility is an "institutional health care service". "Service" is defined in subsection 123(1), in part, to mean anything other than property or money. Thus, for purposes of the ETA, a resident of the Facility is the recipient of a supply of a service and not of property. The fact that the fees and funding of the care and services provided at the Facility are set within a legislative scheme, whereby certain amounts are required to be paid by the residents and operating subsidies are paid by the MOHLTC, does not give rise to multiple supplies. There is one supplier and one recipient for purposes of the ETA.

Pursuant to the definition of "recipient" under paragraph 123(1)(a) (123(1)(a): "recipient" of a supply of property or service means where consideration for the supply is payable under an agreement for the supply, the person who is liable to pay that consideration.), the resident is the recipient of the supply of an institutional health care service made under the Admission Contract. The Service Agreement between the MOHLTC and XXXXX represents an agreement in respect of the financial, regulatory and accountability/monitoring obligations of each party in respect of the other.

As a result, section 6 of Part I of Schedule V will not apply to the activities carried on by XXXXX in respect of the Facility.

3. Is the Provincial Funding Consideration for a Supply?

GST/HST Technical Information Bulletin TIB B-067, Goods and Services Tax Treatment of Grants and Subsidies, (copy attached) sets out policy guidelines to clarify when a payment of a grant or other transfer payment may be regarded as consideration for a supply. Generally, transfer payments made by a government are not regarded as consideration for a supply unless there is a direct link between the payment and a supply received by that government or a specified third party (as stipulated by the government).

It is our view that the operating subsidy provided by the MOHLTC to XXXXX under the Service Agreement is a grant and not consideration for a supply. Funding received by XXXXX from the MOHLTC to assist in the maintenance and operation of the facility is provided pursuant to an on-going funding program under the Integrated Health Care Program, set up for the public purpose of subsidizing community services and institutions that include long-term care facilities in Ontario. The statutory authority for the funding is the NHA. The MOHLTC provides operating subsidies based on a funding formula that takes into consideration the care requirements of residents once the operator has signed a Service Agreement in respect of the facility. The Service Agreement sets out the terms for use of the operating subsidy and reporting to the province on expenditures for accountability purposes. (Section 5.2 Service Agreement)

The MOHLTC does not receive any goods or services for its funding payments and XXXXX uses the funding it receives from the MOHLTC for its operating activities to benefit all of the residents of the Facility rather than any particular resident(s). There is no direct link between the operating subsidy paid to XXXXX by the MOHLTC and a supply received by the MOHLTC or a specified third party.

4. New Residential Rental Property Rebate (NRR)

A person who begins construction of a residential complex after February 27, 2000 will qualify for the NRR provided all of the following conditions are met:

(a) The person is a builder of a residential complex and makes exempt supplies of residential units in the complex by way of lease, licence or similar arrangement where those supplies are included in section 6 of Part I of Schedule V (a builder who makes an exempt supply under any of sections 5.1, 6.1 or 7 of Part I of Schedule V to the ETA may also qualify for the rebate) and which result in the person being deemed to have made and received a taxable supply by way of sale of the complex under section 191.

(b) Tax in respect of the deemed supply made under section 191 is deemed to have been paid by the person.

(c) The residential complex includes one or more qualifying residential units.

(d) The person is not entitled to include the tax payable on the deemed supply under section 191 in determining an input tax credit of the person.

(e) In respect of the tax included in determining the NRR, the person would not otherwise be entitled to include the tax in determining a rebate under section 254, 256, 256.1 or 259.

(f) The person files an application for a rebate within two years of the end of the month in which the person is deemed to have paid tax under section 191 in respect of the complex. If the end of that month is before the day on which the legislation received Royal Assent, the person will have two years from the date of Royal Assent to claim the rebate.

Thus, in order to qualify for the NRR, XXXXX must make exempt supplies under section 6 of Part I of Schedule V, which results in XXXXX being deemed under section 191 to have made and received a taxable supply by way of sale of the complex. Part I of Schedule V contains a number of exempting provisions with respect to the supply of real property. In this particular case we have determined the nature of the supply made by XXXXX to residents of the Facility to be an exempt supply of a service under section 2 of Part II of Schedule V, rather than an exempt supply under Part I. Therefore, XXXXX is not eligible for the NRR pursuant to section 256.2.

Self Supply

Section 191 sets out 'self-supply' rules where a builder constructs or substantially renovates a residential complex and supplies the complex by way of lease, licence or similar arrangement for the purpose of its occupancy by an individual as a place of residence. The builder is treated as having sold and repurchased the complex and is generally required to remit the GST on the fair market value of the complex. One of the conditions that must be present in order for the self-supply rule under subsection 191(3) to apply is that the builder must give possession of a unit in the complex to a person under a lease, licence or similar arrangement for the purpose of occupancy of the unit by an individual as a place of residence. In this case we do not consider this condition to exist. Therefore, XXXXX is not treated as having sold and repurchased the Facility and is not required to account for the GST on the fair market value of the Facility.

It is generally understood that a resident is admitted to and lodged in a health care facility for reasons other than solely occupancy of a room or a bed. In the case at hand, although the Facility provides living accommodation, the primary purpose for which XXXXX operates the Facility is to provide long-term care that involves nursing, personal and supervisory care, meals, and support services, as stated in the LTCF Program Manual. Subsection 191(3) applies where a builder of a multiple unit residential complex "... gives possession of any residential unit in the complex under a lease, licence or similar arrangement entered into for the purpose of the occupancy of the unit by an individual as a place of residence. ..." That is, the possession or use of the room or the bed entails more than occupancy rights. In addition, it is not the intent of the MOHLTC to create a landlord and tenant relationship under the Admission Contract.

Other Issues

Input Tax Credits Claimed on Construction of the Facility

You advised that XXXXX claimed full input tax credits for the GST it paid on the construction of the Facility. Accordingly, it is important to note that pursuant to section 169, the ability of a person to claim input tax credits is limited to the extent that the person acquired property or services for consumption, use or supply in the course of commercial activities of the person. The definition of "commercial activity" in subsection 123(1) specifically excludes a business carried on by a person that involves the making of exempt supplies by the person.

Therefore, to the extent that the tax paid or payable on construction services acquired in constructing the Facility are inputs into the making of exempt supplies under section 2 of Part II of Schedule V to the ETA, XXXXX will not be eligible for input tax credits in respect of that tax.

XXXXX

Optional Goods and Services

You advised that XXXXX is making separate supplies of optional goods and services to the residents, or arranging for these optional goods and services. These optional goods and services are noted in Fact 15, and were identified as:

•   Personal goods and services such as identification bracelets,

•   Wheelchairs,

•   Non-prescription drugs,

•   Foot care,

•   Transportation,

•   Private duty nursing services,

•   Telephone,

•   Newspaper,

•   Cable television services,

•   Sale of goods from XXXXX,

•   Hairdressing and barber services, and

•   Special outings.

Separate fees are charged for these optional goods and services, which are invoiced by XXXXX on an individual basis. These optional goods and services are not inputs or elements of XXXXX supply of an institutional health care service rendered to the residents of the Facility. Rather, these are separate supplies, the tax status of which for GST/HST purposes is evaluated on a supply-by-supply basis. It is our view that the majority of these supplies of optional goods and services would be taxable at the rate of 7%; the exceptions being private duty nursing, which may be exempt under section 6 of Part II of Schedule V and sales of wheelchairs, which may be zero-rated under section 14 of Part II of Schedule VI.

Should you have any further questions or require clarification regarding section 2 of Part II of Schedule V to the ETA or the tax status of supplies of optional goods and services, please contact the undersigned at (613) 952-6761.

Should you have any further questions or require clarification regarding the Canada Revenue Agency's position on grants and subsidies, please contact Glenda MacInnes at (613) 952-8531.

Should you have any further questions or require clarification regarding sections 191 and 256.2, please contact Indra Singh at (613) 957-8226.

Yours truly,

Susan Eastman
Municipalities and Healthcare Services Unit
Public Service Bodies and Governments Division

2004/05/27 F — RITS 47719 — XXXXX Application de la partie IX de la LTA