On January 24, 2014 former Finance Minister Jim Flaherty announced a policy shift in the form of proposed amendments to the Excise Tax Act ("ETA") with respect to the application of GST/HST on paid hospital parking.
The Department of Finance billed these amendments as providing a blanket exemption for hospital parking, stating "Patients and Visitors Would No Longer Pay GST/HST on Hospital Parking". The proposed amendments, however, are drafted in a complex manner and definitely do not provide for a total exemption on supplies of parking.
As a result, public hospitals will need to carefully review these amendments in light of the circumstances relevant to their parking facilities prior to concluding on the tax status of their supplies of parking, and also on the structure of their parking arrangements vis-à-vis their associated foundations.
The supply of a parking space by a hospital has been subject to GST/HST since the inception of the GST in 1991. This tax applied even where a hospital authority is structured as a registered charity. However, in 1997, certain rules were amended to broaden GST/HST exemptions, including a change that exempted the supply of a parking space by a charity that was not a public institution (e.g. a charitable foundation), while supplies made by a charity that was a public institution (e.g. public hospitals) remained taxable.
This exemption created an inconsistency that was noticed by public hospitals and their tax advisors, and which ultimately resulted in a number of hospitals and their associated foundations entering into (sometimes complex) arrangements. At their simplest, these arrangements allowed the foundations (rather than the hospitals) to provide the parking at their associated hospitals, and by doing so, eliminated the GST/HST on the ultimate supply of such parking spaces.
To resolve this inconsistency, Finance first proposed, in the 2013 federal budget, to tax hospital parking regardless of whether the parking was supplied by the hospital authority or its associated foundation. With the January 2014 announcement, it became clear that Finance has taken the opportunity to partially reverse this 2013 policy direction and to propose amendments that will exempt parking services that are provided directly by a public hospital and are used primarily by patients and visitors, but not staff, so long as certain requirements are satisfied.
Although these new amendments are proposed as a method to provide consistency in the treatment of hospital parking, the complexity of these amendments have instead introduced significant uncertainty with respect to the application of GST/HST to these services.
The New Exemption
The 2014 amendments introduce an exemption that applies after March 21, 2013, for parking provided to patients and visitors to hospitals. The visitor exemption does not, however, include, parking provided in lots that are used extensively by staff or lots used for purposes other than by individuals accessing the hospital, parking on properties where certain tax elections are in place, or the sale of multi-day staff related parking.
As with many aspects of the ETA, the conditions that must be satisfied in order to properly take advantage of this new exemption are complex and dependent on the specific factual circumstances relating to the hospital's parking arrangements.
The new amendments also provide some relief to hospital foundations that began collecting and remitting GST/HST as of the effective date of the 2013 Budget changes (March 22, 2013). This relief also has a number of conditions attached to it, and where a taxpayer seeks to recover remitted tax by way of rebate under these relief provisions, that taxpayer will need to be cognizant of the time limitations imposed.
To Convert or not to Convert?
In addition to the general complexity associated with simply applying the provisions as found in the draft legislation, for any hospital and foundation that entered into a parking arrangement as described above, there is the additional complexity of deciding whether to unwind the arrangement or not. Although the legislation is designed to effectively treat the supplies of parking to end users the same, regardless of whether it is being supplied by the hospital or the foundations, there are still benefits and costs to the hospital and foundation to be weighed.
Some of the considerations will be based on the specific nature of the arrangements, and will depend on factors such as whether a third party company is actually operating the parking facilities, whether the parking lot lands are owned by the hospitals or just leased by them, and on the specific nature of the agreements between the hospital and the foundation. There are other non-GST/HST tax considerations to be had as well.
As with so many other elements of the ETA, this is simply another example of the complexity that public hospitals and their foundations must face in their interaction with the GST/HST.