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.
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Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5XXXXX
XXXXX
XXXXX
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Case Number: 84011NCS Code: 11950-1October 18, 2006
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Subject:
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GST/HST INTERPRETATION
XXXXX Retirement Residences
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Dear XXXXX:
Thank you for your facsimile XXXXX, with attachments, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the construction of retirement residences by XXXXX. We apologize for the delay in providing our response.
In particular, you wish to obtain a general interpretation, based on the sample residency agreement provided, on whether a person, who constructs a retirement home to provide long-term residential accommodation and services to seniors, is eligible for the New Residential Rental Property (NRRP) rebate where the total monthly fee under the agreement is inclusive of the accommodations as well as meals and other services. Specifically, based on the sample residency agreement provided, whether there is a supply of a residential unit that is exempt under section 6 of Part I of Schedule V to the Excise Tax Act (ETA).
All legislative references are to the ETA and the regulations therein, unless otherwise specified.
Statement of Facts
Our understanding of the facts as outlined in your facsimile XXXXX, in the supplementary documents provided XXXXX, and in various telephone conversations, is as follows:
1. XXXXX is in the business of building retirement residences for use by seniors as a place of residence. XXXXX is registered for GST/HST purposes.
2. XXXXX provides residential accommodation, meals and, if required, limited assistance with the activities of daily living as well as other services. The extent of services provided will vary depending upon the resident's needs. XXXXX objective is to provide a retirement residence for seniors in an independent living environment.
3. An apartment in a retirement residence typically consists of one or two bedrooms, a living space, kitchenette and a four-piece bathroom. Common features include a wireless emergency response system, telephone and cable TV outlets. Residents are required to furnish their own apartments.
Operating Requirements
4. The retirement residences are generally not licensed in the provinces in which XXXXX currently owns such facilities. In contrast to nursing homes, which are generally licensed by provincial health ministries [v]footnote 1, the retirement residences must generally comply with provincial landlord and tenant legislation.
5. XXXXX the retirement residences are subject to the XXXXX. XXXXX sets out the rights and duties of landlords and tenants of XXXXX.
6. The XXXXX requires that there be a written tenancy agreement relating to the tenancy of every tenant in a XXXXX. The tenancy agreement is to include provisions with respect to the tenant's right to privacy, notice requirement for rent increases, details of charges with respect to XXXXX and meals, written notice for terminating a tenancy and provisions dealing with eviction or transfer of XXXXX tenants in situations where a tenant no longer requires the level of care provided, or requires a higher level of care than the landlord can provide.
7. Before entering into a tenancy agreement with a new tenant in a XXXXX, the XXXXX requires that the landlord provide the new tenant a XXXXX information package containing prescribed information [vi]footnote 2.
Admission Procedures
8. Unlike admission to a nursing home XXXXX where a person is required to apply through the XXXXX and be approved for admission by the XXXXX in accordance with provincially established criteria, individuals wishing to reside in retirement residences may apply directly to the residence of their choice.
9. An assessment of a prospective resident is made where there is concern as to the resident's ability to cope with the activities of daily living. Such an assessment may be made by a nurse at the particular retirement residence or, where the prospective resident was referred by a social worker of a hospital, by the social worker concerned.
10. Generally, upon admission, a resident is not expected to require assistance with activities of daily living (e.g., bathing, dressing, transportation to the dining room or other activity). However, where an assessment reveals that a prospective resident requires additional care or assistance with activities of daily living, XXXXX will recommend the purchase of a separate care package, at an additional cost. Evidence of additional care requirements may result in the non-acceptance of the prospective resident to the retirement residence.
Services Provided
11. Basic services provided by XXXXX generally include 24-hour emergency response, housekeeping, laundering of linens and towels, social and recreational programming, administration of medication, daily meals and snacks, and varying amounts of transportation. The services usually provide for at least one meal per day to be taken in the communal dining room.
12. Assisted living services are available where required. These include assistance with bathing, administration of medications, incontinence care, physiotherapy, foot care, and hairdresser and barber services.
13. XXXXX may employ a registered nurse to supervise nurses' aids who assist residents with their medications and other personal care needs. Where required, XXXXX will provide for the safekeeping and/or assistance with the administration of medication.
14. Generally, the services available at a retirement residence are set out in an addendum to the agreement entered into by XXXXX and the resident. Where support services are required, the addendum to the agreement indicates the nature of the support services provided.
15. XXXXX may provide a limited number of additional care and supportive services such as personal nursing care and companion service, for which there is a separate charge.
16. In some retirement residences, residents purchase a monthly care plan that includes a defined care program. Monthly pricing will vary according to the services provided. In other instances, a resident may purchase XXXXX services on an hourly basis, which may be provided by a third-party health care agency or by the retirement residence staff for a separate charge.
Residency Agreement
17. A sample generic residency agreement (Agreement) used by XXXXX at retirement residences, XXXXX, has been provided. The Agreement stipulates that, whereas the XXXXX (i.e., retirement residence), provides living accommodation together with care, services, meals and other items to assist residents with their daily living needs, residency in the XXXXX is available only to those individuals who require XXXXX, meals and other items to assist them with their daily living needs.
18. XXXXX the Agreement provides that the Operator XXXXX agrees to lease a suite (private or semi-private) for the resident's personal occupancy as residential care accommodation. Generally, a resident enters into the Agreement with XXXXX for a minimum of one year.
19. Under XXXXX the Agreement, XXXXX reserves the right to terminate the residency in accordance with the XXXXX in the event the resident requires a level of care that XXXXX is not able to provide or that the resident is unable or unwilling to purchase.
20. XXXXX the Agreement sets out the "Total Basic Fee". The Total Basic Fee consists of "rent" and "non-rent charges", and is made up of the following three components, with corresponding charges separately identified:
• Basic rent for the suite ("rent")
• Basic XXXXX services and meals
• Other charges
21. XXXXX the Agreement provides that the Total Basic Fee is consideration for the right to occupy the suite and for the residential services and facilities, XXXXX, meals and other items identified XXXXX. XXXXX sets out the following XXXXX services:
___ call-bell monitoring (personal emergency response services)
___ bed checks
___ medication administration/supervision
___ on-site director of care
___ assistance with bathing
___ minimum of one staff member on duty at all times
___ activation program
___ housekeeping
___ provision of bed linens and towels (including laundering)
___ personal laundry
A resident may select the services as applicable.
22. XXXXX the Agreement provides that the Total Basic Fee is payable by the resident whether or not the resident utilizes all of the items identified on XXXXX in any particular month.
23. XXXXX the Agreement provides that the resident may not sever and terminate any portion of the Agreement. A resident, upon giving the Operator proper notice as set out in the Agreement, may only terminate the Agreement as a whole.
24. XXXXX sets out optional items for which the resident agrees to pay an amount in addition to the total basic fee. These include a separate monthly fee for parking, and the cost of XXXXX services and meals in respect of any additional occupant of the suite.
Interpretation Requested
Whether a person who constructs a retirement residence to provide long-term residential accommodations and services to seniors is eligible for the NRRP rebate under section 256.2 where the total monthly fee under the Agreement includes accommodation as well as meals and other services. In particular, based on the Agreement provided, whether there is a supply of a residential unit that is exempt under section 6 of Part I of Schedule V.
Interpretation Provided
Under subparagraph 256.2(3)(a)(ii), a builder of a residential complex is required to make an exempt supply of a residential unit by way of lease, licence or similar arrangement, where the supply is included in section 6 or section 6.1 of Part I of Schedule V, that results in the builder having to self-supply under section 191.
Section 6 of Part I of Schedule V exempts the supply of a residential complex or unit by way of lease, licence or similar arrangement where it is supplied "for the purpose of its occupancy as a place of residence or lodging by an individual" for a period of continuous occupancy to the same individual for at least one month. A builder is required to self-supply under section 191 where the builder gives possession of a residential unit under a lease, licence or similar arrangement entered into for the purpose of occupancy of the unit by an individual as a place of residence, and the other conditions of that section are also met.
Whether a particular supply is exempt under section 6 of Part I of Schedule V will depend upon the facts of the particular case. It is possible that a supplier could be providing other goods and services in conjunction with or in addition to a residential unit or complex that would ordinarily be included in a section 6 supply. Where a supplier provides several goods and services, it will be necessary to determine whether the supplier is making a single supply or multiple supplies [vii]footnote 3. If it is determined that the supplier is making a single supply, it is necessary to characterize the supply to determine whether any exempting provisions apply. If the supplier is making multiple supplies, it must be determined whether any particular supply is incidental to any of the other supplies, and whether any supply is included in section 6 of Part I of Schedule V. If it is determined that there is no supply being made that is included in section 6, there will be no eligibility to the NRRP rebate.
Residency Agreement
While the Agreement provides for a Total Basic Fee to be paid monthly by the resident, the Total Basic Fee is made up of separate elements which are separately identified and for which separate charges are set out. These charges are further categorized in the agreement as "rent" (i.e., basic rent for the suite or accommodation) and "non-rent charges" (i.e., XXXXX services, meals and other charges).
In accordance with the XXXXX, residents are made aware of the various elements of the supply and the related charges. Before entering into a tenancy agreement with a new tenant in a XXXXX, the XXXXX requires that the landlord give the new tenant a XXXXX information package setting out the list of charges for the various types of accommodation provided and alternative packages of XXXXX services and meals available. Accordingly, the sample Agreement provided sets out in XXXXX the various services available to a resident. Consideration is separately identified such that a resident knows the amount paid for accommodations, XXXXX services and meals, and other charges.
While separately itemized elements are factors in determining whether separate supplies are being made, the requirement to separately itemize the various services and charges is a requirement of provincial legislation XXXXX. In addition, while a resident has a choice in selecting a basic XXXXX services and meals package to suit their individual needs, the Agreement specifically stipulates that residency in the retirement home is only available to individuals who require XXXXX services, meals and other services in addition to the accommodation. Under such circumstances, a resident would not have the choice of acquiring accommodation to the exclusion of the other services. Furthermore, the Agreement provides that a resident cannot sever or terminate a part of the Agreement, and that the Total Basic Fee is payable whether or not a resident uses the goods or services.
Based on the sample Agreement, if the operator of a retirement residence is making multiple supplies of accommodation, meals and other services, one of the supplies made by the operator would include the supply of a residential unit, which would be exempt under section 6 of Part I of Schedule V. Alternatively, if the operator is making a single supply consisting of accommodation, meals and other services, as described in the sample Agreement, it is our view that the predominant element of the supply would be that of a residential unit, which would be exempt under section 6 of Part I of Schedule V. As such, in either situation, the requirement under paragraph 256.2(3)(a) is satisfied.
Self-Supply
Section 191 sets out the "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 purpose of its occupancy by an individual as a place of residence. The self-supply rules deem the builder to have made and received a taxable supply by way of sale of the complex at the later of the time construction or substantial renovation is substantially completed and the time possession of a residential unit is given to an individual under a lease, licence or similar arrangement. The builder is required to account for the GST/HST on the deemed sale based on the fair market value of the complex at that time. Given that the deemed sale under section 191 is a taxable supply, a builder who is a GST/HST registrant is generally entitled to claim ITCs on costs incurred with respect to the construction of the complex up to the time of self-supply.
Accordingly, where the remaining conditions under subsection 256.2(3) are met, XXXXX will be eligible to claim a NRRP rebate in respect of the supply of the residential units exempt under section 6 of Part I of Schedule V.
The foregoing comments represent our general views with respect to the subject matter of your request. These comments are not rulings and, in accordance with the guidelines set out in GST/HST Memorandum 1.4, Goods and Services Tax Rulings, do not bind the Canada Revenue Agency with respect to a particular situation. Future changes to the ETA, regulations, or our interpretative policy could affect this interpretation.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-952-9212.
Yours truly,
Carmela Antonelli
Real Property Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate
2006/11/16 — RITS 84342 — [Application of the GST/HST to Supplies of Other Arrangements of Prepared Food]
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