8 August 2002 GST/HST Ruling 31015 - New Residential Rental Property Rebate on Construction of a Nursing Home

Dear XXXXX:

Thank you for your letter of XXXXX, (with attachments), concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the transactions described below. We apologize for the delay in our response.

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

Statement of Facts

Our understanding of the facts and the transactions is as follows:

1. At some time after XXXXX, you began construction of a nursing home in XXXXX. The general contractor that you hired to construct the nursing home will charge you the GST for supplies made to you. In addition to the building construction costs, you will incur GST on kitchen equipment and interior furnishings purchased for use in the rooms in the nursing home.

2. You will own and operate the XXXXX-bed nursing home, which will be operated on a for-profit basis and will be licenced by the provincial Ministry of Health. You will not be eligible for grants or rebates for the cost of construction of the nursing home or the purchase of land related thereto.

3. You will enter into a Long Term Care Facility Admission Agreement (the Agreement) with each resident of the nursing home, wherein you agree to provide residents of the home with accommodation, care, services, programs and goods that are required to be provided in accordance with XXXXX (the NHA).

4. Provisions of the Agreement include the following:

(a) The resident (or their representative or substitute decision maker, hereinafter referred to as the resident) understands and agrees that you will provide a service for which a charge is levied and for which the resident is responsible to pay.

(b) Upon being accepted for admittance, the resident has entered into a fee for service arrangement.

(c) You agree to provide the accommodations, care, services, programs and goods that are set out in XXXXX to the Agreement XXXXX XXXXX. These basic care services are legislated under the NHA. It is not possible for you to supply any one of these elements to the exclusion of the others. While some services are not covered under the basic care component, but are offered at an additional fee (e.g. valet service, hair styling and other services set out in XXXXX to the Agreement), the basic care includes both accommodations and other supplies.

(d) The resident agrees to pay a monthly fee (or daily fee in the case of part of a month), which varies depending on the type of accommodation provided (private, semi-private, or ward). The fee rate set out in XXXXX to the Agreement is as follows:

(i) XXXXX per month for private accommodations

(ii) XXXXX per month for semi-private accommodations

(iii) XXXXX (or a reduced rate) for ward accommodations

The fee is payable in respect of the basic care, programs and services you provide. If the resident does not pay the contracted fee rate, the resident agrees to move to the applicable room type in accordance with the fee they do pay. There is no reference in the Agreement that a resident is assigned to a specific room in the nursing home, only to the type of room based on the fee paid. (XXXXX provides that you have the right to move a resident, at any time and without notice, to the type of accommodation the resident is paying for.)

5. A resident is admitted to the nursing home generally when they have lost some capacity for self-care and require different types of assistance in their daily lives. The purpose of entering the nursing home is not to receive rehabilitative care such that they can return to living on their own. Rather, the resident is treated based on their specific needs and those needs generally increase the longer the patient stays in the nursing home. A resident of a nursing home typically moves into the home on an indeterminate basis and typically leaves the nursing home only when they die.

Ruling Requested

You are enquiring as to your eligibility to the new residential rental property rebate (NRR) as set out in section 256.2 of the ETA.

Ruling Given

Based on the facts set out above, we rule that you are not eligible to the NRR in respect of the construction and operation of this nursing home.

This ruling is 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 this ruling 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

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:

1. 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. None of these sections, however, apply to the situation you described.) to the ETA 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.

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

3. The residential complex includes one or more qualifying residential units.

4. 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.

5. 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.

6. 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.

As set out in the first condition, in order to be eligible to the NRR, the builder of a residential complex must make exempt supplies under section 6 of Part I of Schedule V to the Act. Section 6 of Part I of Schedule V exempts a supply:

"(a) of a residential complex or a residential unit in a residential complex by way of lease, licence or similar arrangement for the purpose of its occupancy as a place of residence or lodging by an individual, where the period throughout which continuous occupancy of the complex or unit is given to the same individual under the arrangement is at least one month; or

(b) of a residential unit by way of lease, licence or similar arrangement for the purpose of its occupancy as a place of residence or lodging by an individual, where the consideration for the supply does not exceed $20 for each day of occupancy".

In determining whether you are making a supply under section 6 of Part I of Schedule V, it is necessary to examine the nature of the supply. Specifically, it is necessary to consider whether you are making a single supply or multiple supplies. In that regard, enclosed policy paper P-077R, "Single and Multiple Supplies", provides assistance.

Under the Agreement, you agree to provide the basic care, programs and services set out in XXXXX to the Agreement. These basic care services are legislated under the NHA and as such, it is not possible for you, at least in a nursing home scenario, to provide only accommodations to the exclusion of the other programs and services. The basic care services you offer include much more than simply accommodations. Once an individual is admitted to the facility, the resident receives all of the basic care, programs and services set out in XXXXX. As such, based on the terms of the Agreement, the facts surrounding this case and the factors listed in P-077R, we consider you to be making a single supply. Your supply to a resident is not simply that of accommodations as set out in section 6 of Part I of Schedule V, as there are far more elements to your supply than contemplated by section 6.

Therefore, because your supply to a resident is not made under section 6 of Part I of Schedule V to the ETA, one of the conditions for claiming the NRR is not met and a rebate eligibility does not arise.

Additional Information

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. In respect of a multiple unit residential complex, one of the conditions that must be present in order for the self-supply rule 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 the occupancy of the unit by an individual as a place of residence. In the case at hand, we do not consider that this condition exists. Therefore, you are not treated as having sold and repurchased the nursing home and you are not required to account for GST on the fair market value.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 954-4393. If you require assistance with other GST/HST matters, please contact your district tax services office at: XXXXX[.]

Yours truly,

Hugh Dorward
Real Property Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate