The Canada Revenue Agency ("CRA") recently reversed its long standing administrative policy regarding the exempt nature of nursing staffing agencies, taking the position that these services are taxable and not exempt: see Excise and GST/HST News No. 89 (issued without much fanfare in late Summer 2013).
This effectively decision has effectively reversed the CRA's twenty year old position in GST Memorandum 300-4-2 (Health Care Services, September, 17, 1993) which had previously concluded that these services were all exempt, under section 6 of Part II of Schedule V of the Excise Tax Act.
CRA's new position is apparently that if a the staffing agency's responsibility is limited to providing registered or licensed nurses to the facility (e.g., the Hospital) so that the facility may satisfy its own staffing requirements, and with the nurses subject to the control of the operator of the facility, the services rendered by the nursing agency are taxable and not exempt.
While there may be some safe harbors for existing nurse staffing agencies, they are likely going to need specialized GST/HST assistance to take advantage of the rules.
While the CRA's position has not yet been challenged in the Tax Court – and while the legality of the CRA's position is far from certain – those nurse staffing agencies out there that have been exempting their services in accordance with CRA past policies are, unfortunately, going to have to deal with a new reality for the foreseeable future.
Since we all know that health care services in many Canadian hospitals are currently be provided by qualified nursing personnel supplied by nurse staffing agencies, it may also fall to these hospitals to take the lead on this issue, as Canadian hospitals will be the one's holding the bag for GST/HST. While many of them are eligible for high GST/HST rebates for any tax they pay, not all of the additional GST/HST will be recoverable by the hospital -- which should give them some incentive to carry on the fight. Time will tell.