21 June 2004 GST/HST Interpretation 50848 - Timing Issue - Obligation to account for tax - Sales accrual on open orders

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:

We are writing to clarify our policy regarding the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the substitution of funeral homes under a grandfathered prearranged funeral plan. In accordance with paragraph 18 of section 1.4 of Chapter 1 of the GST/HST Memoranda Series, this letter amends and replaces our previous letter XXXXX regarding this matter. We have enclosed a copy of our previous letter for your reference.

Based on your letter XXXXX and your subsequent telephone conversation with XXXXX, of our staff, our understanding of the facts is as follows:

1. A purchaser of a prearranged funeral plan pays Funeral Home A the necessary funds. The funds are held in trust for the purchaser by the funeral home. The funds are deposited in a trust company or lending institution to be held in trust for the purchaser until the services are provided following the death of the purchaser. Prior to the death of the purchaser, and with the consent of the purchaser, Funeral Home A can assign the plan to Funeral Home B, XXXXX. The effect of this transaction is that Funeral Home A is assigning its rights to perform the funeral services, at the request of the purchaser, to Funeral Home B.

2. The assignment of the prearranged funeral plan is carried out by means of documentation executed by the purchaser. Funeral Home A and Funeral Home B would also exchange letters whereby Funeral Home B would accept the assignment of the prearranged funeral plan from Funeral Home A. Funeral Home A gives up its right to perform the services to Funeral Home B. No money for consideration is paid from Funeral Home A to Funeral Home B relating to the assignment.

3. The funds held in trust respecting the plan may be transferred to the trust company or lending institution which holds the funds in trust if Funeral Home A and Funeral Home B deal with different lending institutions. If the funeral homes deal with the same lending institution, the funds are not transferred and a designation of the account in which the funds are held remains the same, except with the substitution of Funeral Home B for Funeral Home A.

Ruling Requested

Does the GST relief for a grandfathered prepaid funeral service arrangement under section 344 of the Excise Tax Act (Act) continue to apply when the arrangement is assigned or transferred to another funeral home?

In accordance with section 1.4 of Chapter 1 of the GST/HST Memoranda Series, an application ruling can only be issued with reference to a clearly defined fact situation of a particular person. For example, we would require a contract for a particular purchaser of a prepaid funeral service arrangement in order to issue a ruling. Since all the relevant facts cannot be determined, we cannot provide you with a ruling. However, we are pleased to provide you with the following interpretation.

Interpretation Given

Grandfathered Arrangements

For purposes of section 344 of the Act, "funeral services" include the provision of a coffin, headstone, or any other property relating to the funeral, burial or cremation of an individual that is provided under an arrangement for the provision of funeral services.

Pursuant to section 344 of the Act, where an arrangement to supply funeral services in respect of an individual is entered into in writing before September 1990, no GST is payable in respect of any supply under the arrangement. Section 344 of the Act applies only where, at the time the arrangement is entered into, it is reasonable to expect that all or part of the funds required to pay for the funeral services will be paid before the individual's death.

Substitutions

Where a new funeral home is substituted for an original funeral home, and there is a written substitution clause in the existing funeral arrangement to permit this substitution (or the arrangement is silent with respect to the substitution of a funeral home), the tax relief provided under section 344 of the Act will continue to apply.

However, where a clause in the existing funeral arrangement does not permit the substitution of a funeral home, and a substitution occurs, this substitution will create a new arrangement. Therefore, the tax relief provided under section 344 of the Act will not apply.

In addition, there are certain circumstances in which the substitution of one funeral home for another may occur for reasons beyond the control of the purchaser of the funeral arrangement. For example, if a funeral home changes ownership, a funeral home's funeral arrangements may be assigned to another funeral home. In situations where the substitution of one funeral home for another is made for reasons beyond the control of the purchaser of the funeral arrangement, and provided that the new funeral home honours the original contract, the tax relief provided under section 344 of the Act will continue to apply.

If another individual is substituted for the original individual who is the object of a funeral arrangement, the substitution will create a new arrangement. As a result, the tax relief provided under section 344 of the Act will not apply.

Also, please note that relief from the provincial component of the HST is provided under section 360 of the Act. For further information on grandfathered arrangements, please see pages 11 and 12 in the attached copy of Technical Information Bulletin (TIB) B-091, Timing of the Application of the GST/HST to Prepaid Funeral Arrangements.

Substitutions for Funeral Plans Not Grandfathered

Generally, funds held in trust can be transferred to a prepaid funeral arrangement for the same individual with another funeral home without any GST/HST consequences, provided the transfer is made in trust. For further details, please see page 5 in TIB B-091.

The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the Act, if enacted, could have an effect on the interpretation provided herein. These comments are not rulings and, in accordance with the guidelines set out in section 1.4 of Chapter 1 of the GST/HST Memoranda Series, do not bind the Canada Revenue Agency with respect to a particular situation.

For your convenience, find enclosed a copy of section 1.4 of Chapter 1 of the GST/HST Memoranda Series.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 954-9700.

Yours truly,

Michèle Routhier, CMA
Technical Analyst
Services and Intangibles Unit
General Operations & Border Issues Division
Excise and GST/HST Rulings Directorate

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