On January 24, 2014, the Department of Finance released draft legislation to provide a GST/HST exemption for public hospitals providing parking primarily for the use of their patients and visitors, effective immediately. The government stated: “Hospitals are encouraged to pass on the savings.” It will remain to be seen if hospitals do pass these savings on to the public.
A little history of this issue will be helpful for readers. There are separate rules for charities that are registered charities or registered Canadian amateur athletic associations as defined by subsection 248(1) of the Income Tax Act and charities that are “public institutions” defined in the Excise Tax Act as school
authorities, public colleges, universities, hospital authorities or local authorities as determined under paragraph (b) of the definition “municipality.”
Under the GST/HST rules, to maintain competitive equity, supplies of paid parking are taxable, whether provided by the private or public sector, as the supply of paid parking is considered a commercial activity. A public sector body is a municipality, university, public college, school authority, hospital authority, charity, non-profit organization or government. However, there are specific rules for charities that trump the taxable rule for parking above. That is, the supply of parking by charities is exempt.
With this tax nuance in mind, a few years ago, a Big Four accounting firm approached hospitals in Ontario and convinced many that there were savings to be had if the hospital transferred the parking business to its foundation charity, charged the same amount for parking fees to the public since generally parking fees are shown as tax included, and retained the savings for charitable purposes. All of this seemed to be great tax planning. However, the Canada Revenue Agency (CRA) was not happy about losing tax revenues that became an extra funding source for hospital foundations.
The budget in 2013 initially proposed that the special GST/HST exemption for parking supplied by charities did not apply to supplies of paid parking that are made by way of lease, license or similar arrangement in the course of a business carried on by a charity set up or used by a hospital to operate a parking facility. This measure was intended to ensure consistent taxable treatment of supplies of paid parking made directly by hospitals and supplies made by charities set up or used by these entities to supply parking. The CRA wanted to close this loophole. However, in the second draft of the bill, this specific provision was not included and the Department of Finance advised that the issue is in discussion with stakeholders.
The recent draft proposed legislation and explanatory documents issued are so complicated and convoluted that they may take months to decipher. However, now that parking provided by hospitals for visitors and patients is not subject to tax and if hospitals pass these savings on to the public by lowering the stated tax included price for parking, it will be a big relief for taxpayers during a time when they are stressed and burdened. The CRA is making this policy change as a big promotional announcement. Let’s hope the hospitals do the right thing.
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