Canada: The GST/HST Implications On Living Arrangements At A Retirement Residence

Everywhere you drive in the Greater Toronto Area (GTA) you cannot help but notice the number of cranes blanketing the GTA 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 that generation. This is a sequel to our 2015 article which was an overview of the most significant Goods and Services /Harmonized Sales Tax ("GST/HST") implications for Residential Care Facilities. Here we'll focus on how the Canada Revenue Agency (the "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 is dependent on the individual resident's needs, which in turn will drive how the arrangement is 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.

As such, the operator of the retirement resident will not be required to charge GST/HST on the rent for the unit. However, the operator will also not be able to recover the GST/HST paid on the costs incurred to operate the facility.

Exempt residential care services

The arrangement could also be GST/HST exempt if it provides care and supervision services jointly with a place of residence to individual with a disability in the retirement residence.

The operator of the retirement residence will effectively be in the same situation for GST/HST purposes as if he or she was providing a GST/HST exempt residential lease without the care and supervisory service.

There is no minimum period of residence to qualify for residential care exemption, however, the individual must have a disability (see section 3 below) to qualify for the exemption. This exemption may apply, for example, to a trial stay by an individual with disability for a period of less than one month in a retirement residence.

Meals and ancillary services included

Meals and ancillary services may also be included as part of the living arrangement. When not charged separately, those items are generally deemed 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 service would be considered to be an ancillary service.

In any event, meal plans 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?

Most 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 or may not 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 (goods or service) that is optional as part of the exempt rental or residential care package, the CRA is more likely to consider this item as sold separately. On the other hand, 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 above in part 1, residential care services and disability care services are GST/HST exempt only if the tenant receiving those services meet 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 generally consider a "disabled individual" as meaning 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 activity of daily living" are generally viewed as the basic activities of daily living such as 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).

Disability care services apply 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".

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) before determining that the care services are 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 a retirement residence to cover a range of living arrangements, from independent living to assisting living to memory care. Add on the services being offered as part of a package or a la carte, just muddies the waters. By assisting our clients in navigating those muddy waters, we help provide a clearer picture on where GST/HST applies and how they present their packages to prospective residents.

*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.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Alan Wainer CA, CPA, CPA (Illinois)
Frédéric Pansieri, BBA, CPA, CA
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