Everywhere you drive in the Greater Toronto Area (GTA), you cannot help but notice the number of cranes blanketing the skyline. Many of them are for the construction of retirement residences. The growth of this industry is being driven by the changing demographics and demands of aging Torontonians (and aging Canadians across the country).
This article is a follow-up to “Significant GST/HST Implications for Residential Care Facilities,” where we discussed the significant Goods and Services /Harmonized Sales Tax (“GST/HST”) implications applicable to the construction of Residential Care Facilities. Here we will focus on how the Canada Revenue Agency (“CRA”) applies the GST/HST to the living arrangements offered in a retirement residence.
A typical living arrangement is, primarily, a long-term residential lease provided together with a meal plan, personal assistance, and non-acute care services*.
The GST/HST implications associated with the resident’s living arrangements are dependent on how the arrangements are structured. In particular, the following factors are relevant:
1] What are the predominant elements of the arrangement?
Exempt residential lease
If the predominant element of the arrangement is the right to occupy a residential unit (e.g., a room or a suite) as a place of residence for a period of at least one month, the arrangement will generally be considered a GST/HST exempt residential lease.
The operator of the retirement residence will not be required to charge GST/HST on rent for the unit. However, the operator will also not be able to recover GST/HST paid on the costs incurred to operate the unit.
Exempt residential care services
The arrangement could also be GST/HST exempt if the operator provides care and supervision services to an individual with a disability, in conjunction with a place of residence.
The operator of the retirement residence will effectively be in the same situation for GST/HST purposes, as if it was providing a GST/HST exempt residential lease without the care and supervisory service.
There is no minimum period of occupation to qualify for the residential care exemption; however, the individual must have a disability (see Point 3 on the following page) to qualify for the exemption. This exemption may apply, for example, to a trial stay in a retirement residence by an individual with a disability, for a period of less than one month.
Meals and ancillary services included
Meals and ancillary services may also be included as part of the living arrangement. When not charged separately, these items are generally considered to be part of the GST/HST exempt residential lease or GST/HST exempt residential care “package”. It is a question of fact whether any particular service would be considered to be an ancillary service.
A meal plan that includes at least 10 meals per week served in the retirement residence would also, generally, be GST/HST exempt. This exemption would apply whether the meals are included in the rent or lump-sum charge for the residential care package, or whether there is a single separate charge for the meal plan itself (e.g., weekly or monthly fee).
2] What are the choices available to the resident?
Many living arrangements include a list of individual items charged separately in addition to the basic monthly rental fees or residential care packages. Each of these items may be taxable for GST/HST purposes on its own. It is important to review each of these items to determine the appropriate GST/HST status.
When the charge is for an item (a good or a service) that is an optional addition to the exempt rental or residential care package, the CRA is more likely to consider this item as sold separately. Conversely, if the resident does not have a choice and must pay the additional charge for the separate item, the CRA is more likely to consider this item to be a component of the exempt rental or residential care package.
3] What is the health status of the resident?
As stated the first point, residential care services and disability care services are GST/HST exempt only to the extent the resident receiving those services meets certain health conditions.
Exempt residential care services apply only to an individual with a disability
The term “disability” is not defined for GST/HST purposes. The CRA typically considers a “disabled individual” to be an individual who, because of some impairment that has lasted or is expected to last at least 12 months, is restricted in carrying out the basic activities of daily living.
“Basic activities of daily living,” are generally considered to include speaking, hearing, walking, eliminating (bowel and bladder functions), feeding, dressing and mental functions necessary for everyday life. The CRA further indicates that the effect of impairment must be such that, even with therapy and the use of appropriate devices and medication, the individual is restricted all or substantially all of the time (at least 90% of the time).
The GST/HST exemption for disability care services applies only to an individual with limited physical or mental capacity for self-supervision and self-care, due to an infirmity or disability. It is not entirely clear what the difference is between an “infirmity” and a “disability”. Where there is no medical condition or state that explains the infirmity, the infirmity might be attributed, generally, to a weakness of the body or mind that is severe and persistent.
If the resident is not an individual with a disability or an infirmity, the CRA would still consider whether any specific exemption may otherwise apply (e.g., nursing care or medical care) in determining whether the care service is taxable or exempt.
The process applied by the CRA to determine whether GST/HST applies to living arrangements offered in a retirement residence requires a detailed analysis of all the relevant facts relating to the individual arrangement. A vast array of services are now being offered at retirement residences to cover a range of living arrangements, from independent living, to assisted living, to memory care. The addition of services offered as part of a package or a la carte muddies the waters. We assist our clients in navigating those muddy waters by providing a clearer roadmap to determine in which cases GST/HST may apply, and how retirement residence operators can present their packages to prospective residents to optimize their GST/HST position.
* Where the arrangement is predominantly a service of providing care and supervision to an individual with limited physical or mental capacity for self-supervision and self-care due to an infirmity or disability, such service will generally be considered to be a GST/HST exempt disability care service. In some cases, the operator of a retirement home may also provide those acute care service in the form of respite care services for short term stays within the retirement home.
Specific professional advice should be obtained prior to the implementation of any suggestion contained in this article. Contact your Crowe Soberman advisor for more information.
