On January 24, 2014, Finance Minister Jim Flaherty announced proposed amendments to the Excise Tax Act ("ETA") to provide an exemption from the Goods and Services Tax/ Harmonized Sales Tax ("GST/HST") for hospital parking for patients and visitors (the "2014 Parking Proposals").1
By way of background, the 2013 Federal Budget ("Budget 2013") removed the general exemption from GST/HST for parking provided by a hospital foundation. As announced, the 2014 Parking Proposals introduce a narrowly defined exception which will exempt parking by hospital visitors and patients from GST/HST (referred to in this bulletin as the "Visitor Exemption"). The 2014 Parking Proposals apply to parking provided by either a hospital or a hospital foundation.
The Department of Finance has invited interested parties to submit comments on the 2014 Parking Proposals by February 24, 2014.
The supply of the use of a parking space by a hospital has been subject to GST since the initial implementation of the tax in 1991.2
At that time, all supplies of parking made by "public institutions" (such as hospitals) and "charities" (such as hospital foundations) were subject to essentially the same rules. All supplies of hospital parking were taxable.
In 1997, the rules were amended to broaden the GST/HST exemptions available to charities (but not public institutions). Most significantly, as a result of the 1997 amendments, the supply of a parking space made by a charity became exempt from GST/HST.3 The government's intention at the time of those amendments was to reduce the GST/HST collection and accounting obligations of charities, particularly small charities relying extensively on volunteers. As a result of those changes, many charities were able to cease collecting and reporting the GST/HST entirely.
Hospitals and their associated foundations quickly discovered what the media is now referring to as "a loophole that exempted hospital parking charges from tax at lots run by non-profit partners."4
In essence, the "loophole" resulted from the fact that public parking lots operate on a "tax included" basis (e.g., $2.00 per hour). As such, if parking was exempt from GST/HST, and the price was not decreased accordingly, the parking operator would be able to increase parking revenues by the amount of the no longer collected tax. Many hospitals and foundations took advantage of this loophole, restructuring their parking operations and benefitting from the additional available funds.
In Budget 2013, the government proposed to end this practice by amending the ETA so that the same rules applied to both hospitals and their associated foundations: parking provided by either entity would be subject to GST/HST. That amendment was to take effect on March 22, 2013. Budget 2013 did not address the public's concern about the cost of hospital parking generally.
The 2014 Parking Proposals
The 2014 Parking Proposals are focused on two results. The first is to reiterate Budget 2013's proposal eliminating the exemption for parking provided by charities associated with public institutions. The proposed provisions are virtually identical to those proposed in Budget 2013 with a minor exception: for the purposes of determining whether the parking exemption applies, the relevant tests are applied to each parking lot, not to all parking provided at a property as a whole.
In addition, the 2014 Parking Proposals introduce the Visitor Exemption, intended to provide a GST/ HST exemption for parking provided to patients and visitors to hospitals. The Visitor Exemption does not include:
- Parking in lots used by persons other than individuals accessing the hospital (for example, a hospital using excess real property for the purpose of operating a commercial parking lot);
- Parking in lots where 90% or more of the spaces are reserved for staff or others accessing the hospital in a professional capacity (for example, casual sales of excess capacity in a lot intended for the use of staff);
- Parking made available only to staff or others accessing the hospital in a professional capacity or provided at rates only available to such persons (for example, reduced rates offered to staff only or parking in areas reserved exclusively for staff or physicians);
- Sales of parking passes made in advance which allow parking for more than one day by a person accessing the hospital in a professional capacity (for example, staff and physician monthly parking passes); and
- Parking on properties where an election under section 211 of the ETA is in effect.5
The Visitor Exemption applies to any supply of parking made after March 21, 2013 (the date of Budget 2013).
Relief From Budget 2013 Changes For Visitor And Patient Parking
The 2014 Parking Proposals provide some relief to hospital foundations who began collecting and remitting GST/HST when the Budget 2013 changes took effect on March 22, 2013. The 2014 Parking Proposals allow a one-time windfall to those foundations. When an amount is collected by a supplier as or on account of GST/HST, the amount collected must be remitted to the government, even if it was collected in error. Furthermore, when an amount of GST/HST is wrongly collected, generally only the person who paid the tax (usually the consumer) is entitled to recover the amount paid, not the supplier who collected the tax (unless the supplier has refunded the GST/HST wrongly collected to the consumer). The 2014 Parking Proposals, however, include a provision deeming any amount of GST/HST collected by a foundation after March 21, 2013 and before January 25, 2014 that qualifies for the Visitor Exemption not to have been collected as or on account of tax.
Accordingly, foundations that have collected GST/HST with respect to parking that qualifies for the Visitor Exemption within that period of time may keep the amount collected. Further, if that amount has already been remitted, a refund may be claimed. The refund claim must be made within one year after the date on which the legislation proposed in the 2014 Parking Proposals receives royal assent.
Both hospitals and foundations should note that any amount collected as or on account of GST/ HST after January 24, 2014 with respect to parking that qualifies for the Visitor Exemption must be remitted to the government and can only be recovered by the person who paid the parking fee.
It will be important to ensure that tickets and signage are updated so that it is made clear that no amount of the fee for parking eligible for the Visitor Exemption has been collected as or on account of GST/HST.
1 See the Department of Finance's website at: http://www.fin.gc.ca/n14/14-009-eng.asp
2 ETA Schedule V Part VI subsection 25(h), which excludes a supply of a parking space from the general exemption from GST/HST of supplies of real property made by public institutions.
3 See ETA Schedule V Part V.I section 1, which provides that all supplies made by charities are exempt subject to enumerated exceptions. The list of exceptions, prior to Budget 2013, did not include supplies of parking spaces. Accordingly, a supply of a parking space made by a foundation associated with a hospital became exempt from GST/HST in 1997 and remained so until the new exception was added in 2013.
4 Ottawa Citizen, January 24, 2014, "Federal Government to Eliminate HST on Hospital Parking".
5 A charity or public institution may make an election under section 211 of the ETA to treat a particular property as taxable. Where this election is in effect, supplies of all or part of that property that would otherwise be exempt are subject to GST/HST.
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