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.
Excise and GST/HST Rulings Directorate
320 Queen Street
Ottawa ON K1A 0L5
XXXXX
XXXXX
XXXXX
Case Number: 79280
XXXXX
XXXXX
XXXXX
Business Number: XXXXX
Subject:
_GST/HST Interpretation
Application of GST/HST to Instalment Payment Charges
We are writing XXXXX, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to instalment payment charges levied by funeral homes and cemetery operators in respect of property and services supplied under prepaid arrangements, and your XXXXX, in which you asked that we provide additional information regarding our recent policy clarification on the matter. Specifically, you asked us to provide additional information on:
1. whether the policy of charging and accounting for GST/HST on instalment payment charges
(a) will only apply to instalment payment charges levied in respect of prepaid arrangements entered into on or after January 1, 2009, and
(b) will not apply to instalment payment charges levied in respect of existing prepaid arrangements that are entered into before January 1, 2009, where there are minor non-substantive changes to the arrangement (e.g., where the purchaser adds or cancels property or services, or the payment terms of the arrangement are varied);
2. whether the application of the Quebec Sales Tax (QST) on instalment payment charges will parallel the application of the GST/HST on instalment payment charges, and to provide the name of the appropriate contact within Revenu Québec to discuss the matter; and
3. whether XXXXX members of the bereavement industry will be given an opportunity to provide comments on the revisions to GST/HST Technical Information Bulletins B-091, Timing of the Application of the GST/HST to Prepaid Funeral Arrangements, and B-093, Application of the GST/HST to Cemetery Products and Services, to the extent that the revisions deal with the application of the GST/HST to instalment payment charges.
RESPONSE
1. Policy Clarification
XXXXX, we explained that the Canada Revenue Agency (CRA) had reviewed its policy regarding the application of the GST/HST to instalment payment charges levied by funeral homes and cemetery operators in respect of property and services supplied under prepaid arrangements. As explained herein, the CRA's position is that these amounts are consideration for taxable supplies, and not consideration for exempt supplies. This policy clarification will be implemented effective January 1, 2009.
For your information, during consultations with members of the bereavement industry we received comments regarding the application of GST/HST to instalment payment charges. These amounts may be described under various names such as finance charges or service charges. We learned that some funeral homes and cemetery operators have not charged or accounted for GST/HST on these amounts based on information provided by the CRA in 1994, that the amounts were consideration for exempt supplies of financial services. We agreed to undertake a review of this issue.
As you know, some funeral homes and cemetery operators enter into prepaid arrangements with purchasers whereby the person agrees to supply future property or services at the time of the purchaser's death. Typically, under the terms of the prepaid arrangement, the purchaser is allowed to pay for the future supplies by making instalment payments that include instalment payment charges.
After careful consideration of the issue, we have concluded that the instalment payment charges are consideration for taxable supplies. This view is supported by the fact that in some provinces, provincial laws require funeral homes and cemetery operators to hold such amounts in trust.
Given that the CRA had previously indicated to some funeral homes and cemetery operators that such charges were consideration for exempt supplies, and that it will take several months for some funeral homes and cemetery operators to make the system changes necessary to collect and account for tax on the instalment payment charges, the CRA will implement its policy clarification effective January 1, 2009. Specifically, where a prepaid arrangement is entered into:
• before January 1, 2009, the GST/HST will not apply to instalment payment charges that are payable before January 1, 2009, under the prepaid arrangement; and
• on or after January 1, 2009, the GST/HST will apply to instalment payment charges that are payable on or after January 1, 2009, under the prepaid arrangement.
In other words, regardless of when the funeral home or cemetery operator entered into the prepaid arrangement with the purchaser, the funeral home or cemetery operator does not charge and account for the GST/HST on instalment payment charges that the purchaser is required to pay before January 1, 2009. However, the funeral home or cemetery operator must charge and account for the GST/HST on instalment payment charges that the purchaser is required to pay on or after January 1, 2009. This would include, for example, any instalment payment charges that the purchaser is required to pay as a result of changes to an existing prepaid arrangement.
Furthermore, instalment payment charges that are held in trust, along with any interest generated on the amounts held in trust, will be subject to GST/HST when the amounts are withdrawn from the trust and paid to the funeral home or cemetery operator on or after January 1, 2009.
2. Application of the QST
XXXXX. Any questions you have concerning the application of the QST on instalment payment charges should be directed to:
XXXXX
XXXXX
XXXXX
XXXXX
XXXXX
3. Revision of TIBs B-091 and B-093
We are in the process of updating TIBs B-091 and B-093. We will send a draft copy of the revised TIB B-091 to XXXXX for review, as soon as it becomes available. A draft copy of the revised TIB B-093 will not be sent for consultation, however, the revisions with respect to instalment payment charges will mirror those included in TIB B-091.
If you have any questions or comments concerning this policy clarification, please to not hesitate to contact me at (613) 952-8813.
Yours truly,
Christopher Lewis
Services and Intangibles Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate
UNCLASSIFIED
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