Communications

GST Rebate Retroactivity

For the attention ofHospital CEOs, CFOs, OHA Board of Directors and CACN Members

Hilary Short, President and CEO

GST Rebate Retroactivity

The OHA is very pleased to advise Members of a significant change in Canada Revenue Agency (CRA) policy regarding the apportionment of Goods and Services Tax (GST) rebates for hospitals.

The OHA has learned that Ontario’s hospitals will not be required to return approximately $90 million in GST rebates that were collected over the past ten fiscal years. This information was communicated to Ontario’s Minister of Health and Long-Term Care, the Honourable George Smitherman, by a letter from Canada’s Minister of National Revenue, the Honourable Carol Skelton, earlier this week. The Minister’s letter is attached to this Bulletin.

This issue arose after the CRA issued an administrative policy statement intended to “assist hospital authorities in determining their entitlement to the 83% rebate for activities related to the operation of a public hospital” in August 2005. The policy statement included a new, narrow list of activities the CRA considered to be central to the operation of a public hospital and, therefore, eligible for the 83% rebate. In addition, the policy statement made clear the CRA’s intention to apply these provisions retroactively to 1996. The impact on Ontario hospital’s finances of this new interpretation, and its retroactive application, would have been very serious – an immediate, sector-wide repayment of approximately $90 million, and a new, ongoing annual cost to the sector of $16 million.

Minister Skelton’s letter states that the administrative policy only be applied prospectively as of August 17, 2005.As noted above, the primary effect of this change is that Ontario’s hospital sector will no longer be required to account for and return approximately $90 million in GST rebates (plus interest) collected on hospital activities that were conducted in good faith over ten fiscal years.

Minister Skelton’s letter also made clear her department’s willingness to explore issues pertaining to the application of the GST rebate policy to research activities conducted in hospitals, and to apply the 83 percent rebate “as broadly as possible within the legislative framework of the Excise Tax Act.”

These clarifications follow extensive advocacy efforts by the OHA, and its partners, aimed at:

    • Preventing Ontario’s hospitals from having to return $90 million in collected GST rebates;
    • Ensuring that policies related to the application of the 83% GST rebate are applied across the hospital and not-for-profit healthcare sectors as broadly as possible, and;
    • Securing a “zero-rating”, or exemption, for all not-for-profit health providers for the purposes of paying GST. A zero-rating designation will save Ontario’s hospital sector approximately $16 million every year. It is important to note that because hospitals in Alberta are already zero-rated for GST, zero-rating all not-for-profit health sector organizations would create uniformity with respect to the treatment of GST across Canada’s health sector.

The OHA’s advocacy efforts to date include: highlighting the issues of hospital GST rebate apportionment in the OHA’s Election Primer during the January 2006 Federal Election; bringing this issue to the attention of key decision makers in the previous and current Federal Government, and; working with other healthcare organizations, including the Council of Academic Hospitals of Ontario, the Association of Canadian Academic Healthcare Organizations, and the Canadian Healthcare Association to ensure that CRA officials were aware of the importance of this issue to Ontario’s hospitals.

The OHA will continue working to ensure that the 83% GST rebate policy is interpreted as broadly as possible, and to secure a zero-rating for GST for Ontario’s hospitals and the not-for-profit health sector. We will keep Members informed of our efforts and of new developments.

If you have any questions about the application of the GST rebate or this Bulletin, please contact Lou Reidel, Director, OHA Health Finance and Research, at 416-205-1320 (email: lreidel@oha.com).