30 November 2005 GST/HST Ruling 64060 - Juice derived from XXXXX

Please note that the following document, although correct at the time of issue, may not represent the current position of the Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence.

Dear XXXXX:

Thank you for your XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the cancellation of prepaid funeral arrangements.

All legislative references are to the Excise Tax Act (ETA) and the regulations therein, unless otherwise specified.

We understand that in the past, citizens in rural areas XXXXX did not have much choice in which funeral homes they dealt with. As a result, many wishing to enter into a prepaid funeral arrangement had to deal with funeral homes that were some distance from where they lived. Recently, however, these citizens have more choice and are requesting that the original arrangement be "moved" to a local funeral home for the provision of the prepaid funeral services.

When the customer decides to "move" the funeral services to a local funeral home, the original funeral home cancels the first agreement and a second agreement is entered into with the new funeral home.

Interpretation Requested

You would like information on when a funeral home may pay or credit their customers when a prepaid funeral arrangement is cancelled.

Interpretation Given

Under section 232, where a funeral home has collected the GST/HST in respect of a supply of prepaid funeral services from a customer and all or part of the amount paid [other than tax] is later returned to the customer, the funeral home may refund the tax to its customer. This refund can occur when the funeral home pays the amount directly to its customer or transfers the money in trust to another funeral home at the request of its customer.

Where the funeral home has refunded or credited an amount to its customer for the cancellation of a prepaid funeral arrangement, the funeral home may deduct the amount of tax refunded when determining its net tax for the reporting period in which it issued a credit note provided the following requirements are met:

•   the amount was previously included in its net tax; and,

•   a credit note is issued containing certain information within a reasonable time. The required information is as follows:

•   a statement or other indication that the document is a credit note;

•   the funeral home's business or trading name and its Business Number (BN);

•   the customer's name;

and either

•   the amount of the tax refunded; or

•   a statement that the total amount for which the note is issued includes the refund of tax and the applicable tax rate [i.e., 7% GST or 15% HST].

The credit note may be a separate document or the required information may be included on a cheque stub.

If these requirements are met, the result is that the funeral home's net tax for the period in which the tax is refunded to its customer is reduced by the amount it refunded. The funeral home deducts the amount by entering an adjustment on Line 107 of its GST34 - GST/HST Return for Registrants - for the tax refunded to its customer. This must occur within four years of the end of the funeral home's reporting period in which the amount was refunded.

Charges for cancelled prepaid funeral arrangements

When a prepaid funeral arrangement is cancelled, the funeral home is required to account for the GST/HST on a tax-inclusive basis with respect to any amount that it retains as payment for the cancellation.

However, if the original prepaid funeral arrangement was entered into in writing prior to the implementation of the GST and tax on the amount to be retained was not contemplated in the arrangement, the amount retained by the funeral home is not subject to tax. If the original prepaid funeral arrangement was entered into after the GST came into force but prior to the implementation of the HST, the amount retained by the funeral home as payment for the cancellation is subject to GST on a tax-inclusive basis.

New prepaid funeral arrangements

When the customer enters into a new arrangement for prepaid funeral services with another funeral home, the funeral home will not be required to account for the HST on the contributions at the time they are made under the new prepaid funeral arrangement provided the contributions are held in trust. These contributions may be based on an estimate of the consideration that will be payable for the funeral services and the eventual HST that will apply. In this circumstance, the HST will become payable to the funeral home when consideration for the funeral services provided under this new arrangement becomes due, at the rate of tax in effect at that time.

Please refer to the enclosed publication, B-091 Timing of the Application of the GST/HST to Prepaid Funeral Arrangements, for further information on the GST/HST and prepaid funeral arrangements.

The foregoing comments represent our general views with respect to the subject matter of your request. These comments are not rulings and, in accordance with the guidelines set out in GST/HST Memorandum 1.4, Goods and Services Tax Rulings, do not bind the Canada Revenue Agency with respect to a particular situation. Future changes to the ETA, regulations, or our interpretative policy could affect this interpretation.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-954-2488.

Yours truly,

Marjorie Stevens
Services and Intangibles Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

2005/11/15 — RITS 65036 — [Application of the GST/HST to Payments Made to Reimburse the Salary and Benefits of a Participant by a Host Organization to a Sponsor Organization]