The government announced the plan to stop charging GST or HST on hospital parking on Friday, less than a year after ending a tax break on fees at public institutions where the parking lot was run by a non-profit partner.
Hospitals had complained that they would have to absorb the tax, resulting in reduced parking revenues that they use to supplement their annual health care budgets.
Shortly after the measure was introduced in the 2013 budget, the government said the change was intended to ensure consistent tax treatment.
"These are companies that are supplying parking to hospitals and they were getting a special tax reduction," then-junior finance minister Ted Menzies told the Commons last March.
"We do not think that is necessary."
But the Finance Department is now proposing to soften part of that measure to exempt hospital parking fees from the GST or HST.
The Opposition New Democrats denounced the move as hypocritical, accusing the governing Conservatives of making tax policy "by the seat of their pants."
"A year later the Conservatives have realized that it is taxing sick Canadians which is unnecessary, and isn't going to win them any votes," the party said in a statement.
"It took (Finance Minister Jim Flaherty) less than a year to realize this policy was unfair."
In a statement Friday, Flaherty said he expected hospitals to pass on the tax savings by reducing the cost of hospital parking. But a number of hospitals were hoping the government would reverse its decision and had not yet factored the tax into their own budgets.
A charitable foundation set up by the Children's Hospital of Eastern Ontario in Ottawa generates about $1.8 million annually that goes directly into the overall patient care budget.
Adding the HST meant the foundation would have had to collect up to an additional $234,000 from hospital patients and visitors, or hold parking rates steady and absorb the loss.
No tax was ever levied.
"We've been holding off doing that because we knew the government was reconsidering that direction in the budget," said Alex Munter, the hospital's president and CEO.
"So we're very pleased that the government listened to the concerns from hospitals."
Other institutions affected by last year's tax loophole change, however, remain on the hook for parking taxes.
The Harper government said it would keep amendments in place to eliminate the tax exemption for parking provided by a charity set up or used by a municipality, university, public college or school.
The department is accepting public comments on the proposal until Feb. 24.Suggest a correction