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.
XXXXX
XXXXX
XXXXX
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
Case Number : 122142
Business Number : XXXXX
Attention: XXXXX XXXXX
April 16, 2010
Dear XXXXX:
Subject:
GST/HST INTERPRETATION
PROPOSED LAW/REGULATION
Application of Transitional Rules for HST in Ontario to supplies made by funeral homes
Further to our letter of XXXXX (Case Number 119096) we are writing in response to the remaining questions raised in your letter of XXXXX, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to supplies made by funeral homes. We apologize for the delay in our response.
The Government of Canada and the Government of Ontario have signed a Comprehensive Integrated Tax Coordination Agreement for the implementation of HST in Ontario. The HST will come into effect in Ontario on July 1, 2010, at a rate of 13%, consisting of a 5% federal part (equivalent to the existing GST) and an 8% provincial part.
Legislation required to implement the HST in Ontario has received Royal Assent by the Parliament of Canada and the Legislative Assembly of Ontario. However, many of the rules which would apply to transactions will be contained in regulations made under the Excise Tax Act (ETA). Although the Government of Ontario has announced details of the rules which may eventually apply, the required regulations have not yet been made by the Government of Canada.
The following interpretation is based on transitional rules as announced in Information Notice No. 3, General Transitional Rules for Ontario HST, released by the Government of Ontario on October 14, 2009 (Information Notice No. 3). This interpretation should not be taken as a statement by the Canada Revenue Agency (CRA) that transitional rules will be made in their current form.
Interpretation Requested
You would like to know how the HST in Ontario would apply to the following:
6. (a) Does the second paragraph under the transitional rule for prepaid funeral arrangements in Information Notice No. 3 imply that the entire funeral arrangement is not subject to the provincial part of the HST, even if it is only partially paid?
(b) Specifically, what happens when a prepaid funeral arrangement is entered into before July 1, 2010 and death occurs on or after July 1, 2010, but the arrangement is not fully paid?
(c) Typically, prepaid funeral arrangements containing non-guaranteed prepaid funeral services contracts are replaced by a new "at-need" contract. Does the HST apply on the whole amount, or just the additional services?
7. Do we get full HST back as input tax credits, similar to GST?
8. If GST was remitted under a prepaid funeral arrangement by separate cheque, does this still satisfy having paid GST in full, or do they get a refund of the GST based on the arrangement being relieved from the HST?
9. If a funeral arrangement was prepaid, but no GST was collected on the prepaid funeral arrangement, is the whole prepaid funeral arrangement relieved from the HST?
Interpretation Given
Our responses herein are based on our understanding that your questions relate to written prepaid funeral arrangements that are entered into on or after April 1, 2003, and consistent with the rules set out in GST/HST Technical Information Bulletin B-091R, Application of the GST/HST to Prepaid Funeral Arrangements:
• contributions are made by the purchaser to the funeral home before the funeral services are performed;
• some or all of the contributions, and where applicable, some or all of the compounding interest, are required either by provincial law or by the terms of the arrangement to be held in trust by the funeral home for the purchaser, or are held in trust as a result of the funeral home's normal business practices;
• the funeral home is prohibited from withdrawing any of the funds held in trust (unless otherwise allowed under provincial law) until the earlier of the day the amounts become payable to the funeral home for the funeral services, or the day the arrangement is cancelled; and
• the funeral home does not account for the GST in determining its net tax for the reporting period when the contributions are placed in trust, but instead accounts for the GST in determining its net tax for the reporting period when the consideration becomes payable to the funeral home for the funeral services supplied under the arrangement (i.e., generally, when the amounts are distributed from the trust at the time of need).Question 6(a)
Does the second paragraph under the transitional rule for prepaid funeral arrangements in Information Notice No. 3 imply that the entire funeral arrangement is not subject to the provincial part of the HST, even if it is only partially paid?
Yes. Generally, the transitional rule for prepaid funeral arrangements is that if at least part of the consideration has been paid, then any consideration that becomes payable to the funeral home for the original funeral services supplied under the arrangement (i.e., generally, when the amounts are distributed from the trust at the time of need) will not be subject to the provincial part of the HST.
Question 6(b)
Specifically, what happens when a prepaid funeral arrangement is entered into before July 1, 2010 and death occurs on or after July 1, 2010, but the arrangement is not fully paid?
According to the transitional rule for prepaid funeral arrangements, the provincial part of the HST will not apply to the consideration for the part of a funeral service that is performed on or after July 1, 2010 if:
• the funeral service is supplied pursuant to an arrangement in writing that was entered into before July 2010; and
• it was reasonable, at the time the arrangement was entered into, to expect that all or part of the consideration for the funeral service would be paid (or put into trust) before the funeral service is performed.During our telephone conversation of XXXXX you explained that Ontario provincial laws relating to prepaid funeral arrangements require funeral homes to place some or all of the contributions made by the purchaser in trust. Therefore, for purposes of applying the transitional rule, where a written prepaid funeral arrangement is entered into before July 2010, and it is reasonable, at that time, to expect that at least part of the contributions made by the purchaser under the arrangement would be placed in trust before the funeral services are performed on or after July 1, 2010, then the provincial part of the HST will not apply to any consideration that becomes payable to the funeral home for the original funeral services supplied under the arrangement (i.e., generally, when the amounts are distributed from the trust at the time of need).
Please note that the transitional rule for prepaid funeral arrangements applies only to the provincial part of the HST. That is, the federal part of the HST (equivalent to the existing GST) applies to any consideration that becomes payable to the funeral home for the original funeral services supplied under the arrangement, even where those funeral services are performed on or after July 1, 2010.
Furthermore, even though a prepaid funeral arrangement may not be subject to the provincial portion of the HST (i.e., "grandfathered"), that does not necessarily mean that the full HST will never apply to funeral services supplied in connection with the arrangement. For example, where, on or after July 1, 2010, a beneficiary's estate requests that new funeral services be supplied in connection with a grandfathered prepaid funeral arrangement, the full HST will apply to any consideration that becomes payable to the funeral home for those new funeral services. Similarly, where, on or after July 1, 2010, a beneficiary's estate requests that a particular funeral service supplied under a grandfathered prepaid funeral arrangement be substituted with a similar kind or class of funeral service but of an increased value (e.g., an up-graded casket), the full HST will apply to the difference between the value of the consideration for those funeral services. In both cases, the amount of HST payable will be based on the full HST rate that applies on the earlier of the date when the consideration becomes due, or is paid without having become due.
Question 6(c)
Typically, prepaid funeral arrangements containing non-guaranteed prepaid funeral services contracts are replaced by a new "at-need" contract. Does the HST apply on the whole amount, or just the additional services?
If a prepaid funeral arrangement that was not subject to the provincial part of the HST is cancelled on or after July 1, 2010 and replaced with a new at-need funeral arrangement under which funeral services are supplied, then the full HST will apply to any consideration that becomes payable to the funeral home for the funeral services supplied under the new at-need funeral arrangement. The amount of HST payable will be based on the HST rate that applies on the earlier of the date when the consideration for the funeral services under the new at-need funeral arrangement becomes due, or is paid without having become due.
If an at-need funeral arrangement is entered into on or after July 1, 2010 only for the purpose of fulfilling a grandfathered prepaid funeral arrangement and converting the prepaid prices to prevailing retail prices at the time of the beneficiary's death, then the provincial part of the HST will not apply to any consideration that becomes payable to the funeral home for the original funeral services supplied under the grandfathered prepaid funeral arrangement, regardless of whether the arrangement includes a guaranteed or non-guaranteed prepaid funeral services contract. However, where such an at-need funeral arrangement includes new funeral services, the full HST will apply to any consideration that becomes payable to the funeral home for those new funeral services. Similarly, where such an at-need funeral arrangement increases the value of a particular original funeral service, the full HST will apply to the increase in the value of the consideration for that original funeral service. The amount of HST payable will be based on the HST rate that applies on the earlier of the date when the consideration becomes due, or is paid without having become due.
Question 7
Do we get full HST back as input tax credits, similar to GST?
Registrants can claim input tax credits (ITCs) for the GST/HST paid or due on purchases and expenses that are for consumption, use or supply in the course of their commercial activities. Registrants will be able to claim the full HST that they pay or owe on their purchases and expenses to the same extent that they could have previously claimed the GST that they paid or owed on those purchases and expenses.
During the initial period of the HST in Ontario, it is proposed that large businesses (i.e., generally those making taxable supplies worth more than $10 million annually, and certain financial institutions) be required to repay or 'recapture' ITCs attributable to the provincial component of HST that becomes payable, or is paid without having become payable, in respect of specified property and services acquired, or brought into Ontario, by a large business for use by that business in the province. More information on this may be found in the Government of Ontario's Harmonized Sales Tax Information Notice No. 5, Temporary Recapture of Input Tax Credits Requirement.
Question 8
If GST was remitted under a prepaid funeral arrangement by separate cheque, does this still satisfy having paid GST in full, or do they get a refund of the GST based on the arrangement being relieved from the HST?
The contributions made under a prepaid funeral arrangement may include an estimate of the federal part of the HST (equivalent to the existing GST) that will eventually apply to any consideration that becomes payable to the funeral home for the funeral services supplied under the arrangement.
However, during our telephone conversation of XXXXX you explained that some funeral homes do not include an estimate of the federal part of the HST that will eventually apply to any consideration that becomes payable to the funeral home in the contributions made under the prepaid funeral arrangement. Instead, these funeral homes obtain a separate cheque from the beneficiary's estate (usually at the time of need) to cover the federal part of the HST that applies to the consideration that becomes payable to the funeral home for the funeral services supplied under the prepaid funeral arrangement.
In answer to your question, the federal part of the HST that applies to any consideration that becomes payable to the funeral home for the original funeral services supplied under the arrangement is considered to be paid in full where the tax is paid to the funeral home by the beneficiary's estate via separate cheque. Since the federal part of the HST is properly exigible, the beneficiary's estate is not entitled to a refund of that amount, regardless of the fact that the prepaid funeral arrangement is grandfathered for purposes of applying the provincial part of the HST.
Question 9
If a funeral arrangement was prepaid, but no GST was collected on the prepaid arrangement, is the whole prepaid funeral arrangement relieved from the HST?
The transitional rule for prepaid funeral arrangements applies only to the provincial part of the HST. The federal part of the HST (equivalent to the existing GST) applies to any consideration that becomes payable to the funeral home for the original funeral services supplied under the prepaid funeral arrangement, even where those funeral services are performed on or after July 1, 2010.
Therefore, notwithstanding that the contributions made to the funeral home may not have included an estimate of the federal part of the HST that will eventually apply to the consideration that becomes payable to the funeral home, or that the funeral home may not have obtained a separate cheque from the beneficiary's estate to cover the federal part of the HST that applies to the consideration that becomes due to the funeral home, the funeral home is nonetheless liable under the provisions of the ETA to account for the federal part of the HST in determining its net tax for the reporting period in which the consideration becomes payable to the funeral home.
The only situation where the funeral home would not be liable to account for the federal part of the HST in determining its net tax in the reporting period in which the consideration becomes payable to the funeral home is where the written prepaid funeral arrangement was entered into before September 1990 and was not subject to the GST.
The foregoing comments represent our general views with respect to the transitional rules for the HST in Ontario as announced in announced in Information Notice No. 3, General Transitional Rules for Ontario HST, released by the Government of Ontario on October 14, 2009, as they relate to the subject matter of your request. Any change to the wording of transitional rules or any regulations regarding the HST in Ontario, if made, could have an effect on the interpretation provided herein. These comments are not rulings and, in accordance with the guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, do not bind the CRA with respect to a particular situation.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-957-8224. Should you have additional questions on the interpretation and application of GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.
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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