28 July 2006 GST/HST Ruling 81356 - GST Rate Change on Purchase of Hotel Rooms

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 in response to our telephone conversation XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to cemetery products and services supplied under at-need arrangements.

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

Effective July 1, 2006, the rate of the GST has been reduced from 7% to 6% and the rate of the HST from 15% to 14%. The new rates apply to supplies for which the GST/HST is paid on or after July 1, 2006, without having become payable before that date. Specific transitional rules apply to certain supplies, for example, real property. For more information on the transitional rules for the reduction of the GST/HST rate, please refer to Reduction in the Rate of the GST/HST - Questions and Answers http://www.cra-arc.gc.ca/agency/budget/2006/gstrateqa-e.html on the Canada Revenue Agency's Web site.

Our understanding of the facts is as follows:

1. XXXXX (the Company) supplies memorialization merchandise (e.g., a granite base and monument) by way of sale pursuant to XXXXX (the Agreement) that it enters into with purchasers.

2. Pursuant to the terms of the Agreement, if memorialization merchandise is not being delivered at the time of the agreement, the purchaser is required to make a down payment upon signing the agreement. The balance is payable in monthly, quarterly, semi-annual, or annual installments. The period over which the installment payments may be made cannot exceed XXXXX months.

3. According to the Agreement, if the installment plan is chosen, the memorialization merchandise will only be ordered upon payment in full. However, in practice, the Company may order the memorialization merchandise before the total amount payable is received. However, neither ownership nor possession of the memorialization merchandise passes to the purchaser at the time it is ordered. Furthermore, the Company may install the memorialization merchandise before the total amount payable is paid in full. As a result, possession of the memorialization merchandise may be transferred to the purchaser before ownership of the property is transferred.

4. The Company also supplies interment rights pursuant to the Agreement. The supply of the interment rights is made by way of lease, licence or similar arrangement. The supply of the interment rights does not involve a transfer of ownership of the property.

Interpretation Requested

You would like us to clarify the timing of the application of the GST/HST with respect to the supply of the memorialization merchandise and interment rights where the consideration for each supply becomes due on more than one day.

Interpretation Given

Supply of memorialization merchandise by way of sale

The Canada Revenue Agency (the CRA) considers the supply of memorialization merchandise to be a taxable supply of tangible personal property (TPP) for GST/HST purposes. Generally, when a supplier provides memorialization merchandise and the installation of that merchandise, the CRA would consider that the supplier has made a single supply of TPP. More information on this subject can be found in GST/HST Policy Statement P-077R2, Single and Multiple Supplies.

Transfer of ownership or possession on or after the day all consideration is paid or becomes due

With respect to the timing of the application of the GST/HST, subsection 168(2) provides that where the consideration for a taxable supply is paid or becomes due on more than one day,

(a) the GST/HST in respect of the supply is payable on each day that is the earlier of the day a part of the consideration is paid and the day that part becomes due; and

(b) the GST/HST that is payable on each such day shall be calculated on the value of the part of the consideration that is paid or becomes due, as the case may be, on that day.

With respect to determining when consideration becomes due, subsection 152(1) provides that the consideration, or a part thereof, for a taxable supply shall be deemed to become due on the earliest of

(a) the earlier of the day the supplier first issues an invoice in respect of the supply for that consideration or part and the date of that invoice,

(b) the day the supplier would have, but for an undue delay, issued an invoice in respect of the supply for that consideration or part, and

(c) the day the recipient is required to pay that consideration or part to the supplier pursuant to an agreement in writing.

The Company supplies the memorialization merchandise pursuant to an agreement in writing. Therefore, pursuant to paragraph 152(1)(c), the consideration for the supply is deemed to become due on the day the purchaser is required to pay that consideration or part to the Company pursuant to the Agreement. As a result, and pursuant to subsection 168(2), the purchaser is required to pay GST/HST on the supply of the memorialization merchandise on the earlier of the day he/she pays the consideration or part and the day he/she is required to pay the consideration or part under the Agreement.

Example 1

A cemetery operator enters into a written at-need agreement with a purchaser to supply memorialization merchandise by way of sale. The parties enter into the agreement on October 2, 2006, and the purchaser makes a down payment on that day. The purchaser agrees to pay the balance by making three quarterly installment payments on January 2, 2007, April 2, 2007, and July 3, 2007.

The purchaser makes the installment payments in accordance with the agreement. The cemetery operator installs the memorialization merchandise on July 3, 2007, and thereby transfers ownership and possession of the property to the purchaser on that day.

In accordance with subsection 168(2), the GST/HST in respect of the supply is payable on the earlier of the day a part of the consideration is paid and the day that part becomes due pursuant to the written agreement (i.e., October 2, 2006, January 2, 2007, April 2, 2007, and July 3, 2007).

Transfer of ownership or possession before the day all consideration is paid or becomes due

In certain situations, the general timing rules found in subsection 168(2) are overridden. With respect to this particular case, paragraph 168(3)(a) provides that where all or any part of the consideration for a taxable supply of TPP by way of sale has not been paid or become due on or before the last day of the calendar month immediately following the first calendar month in which the ownership or possession of the TPP is transferred to the recipient, the GST/HST in respect of the supply, calculated on the value of that consideration or part, as the case may be, is payable on that day.

There may be times when the Company transfers possession of the memorialization merchandise before all of the consideration for the supply of the TPP is paid or becomes due. Where this occurs, and all or any part of the consideration has not been paid or become due on or before the last day of the calendar month immediately following the month in which the possession of the merchandise is transferred, the purchaser is required to pay GST/HST on the supply of the memorialization merchandise on the last day of that calendar month.

Example 2

As in Example 1, a cemetery operator enters into a written at-need agreement with a purchaser to supply memorialization merchandise by way of sale with the same installment payment dates. However, the cemetery operator installs the memorialization merchandise on April 9, 2007, and thereby, at a minimum, transfers possession of the property to the purchaser on that day.

In accordance with subsection 168(2), the GST/HST in respect of the supply is payable on the earlier of the day a part of the consideration is paid and the day that part becomes due pursuant to the written agreement. Therefore, for the down payment and the installment payments, tax is due on October 2, 2006, January 2, 2007, and April 2, 2007.

The last installment payment is due on July 3, 2007, according to the written agreement. However, possession of the memorialization merchandise is transferred to the purchaser on April 9, 2007, before the final installment payment is paid or becomes due. In accordance with subsection 168(3), all of the consideration has not been paid or become due on or before May 31, 2007 (i.e., the last day of the calendar month immediately following the first calendar month in which possession of the TPP is transferred to the purchaser). As a result, even though the purchaser is required to make the final installment payment on July 3, 2007, the remaining GST in respect of the supply is payable on May 31, 2007.

Supply of interment rights by way of lease, licence or similar arrangement

Interment rights are a form of real property for GST/HST purposes. In this case, it is assumed that the supply of interment rights is made by way of lease, licence or similar arrangement.

As previously discussed, subsection 168(2) provides the rules for determining the timing of the application of the GST/HST where the consideration for a taxable supply is paid or becomes due on more than one day. With respect to determining when the consideration becomes due on a supply of interment rights, subsection 152(2) provides that where property is supplied by way of lease, licence or similar arrangement under an agreement in writing, the consideration, or any part thereof, for the supply shall, for GST/HST purposes, be deemed to become due on the day the recipient is required to pay the consideration or part to the supplier pursuant to the agreement.

The Company is to use the rules set out in subsection 168(2) for determining the timing of the application of the GST/HST in respect of the supply of the interment rights, even where the interment rights are used before all of the consideration is paid or becomes due. The override rules found in subsection 168(3), which relate to supplies of TPP by way of sale and to supplies of construction, renovation or alternation of, or repair to real property, ship or other marine vessel, do not apply to the supply of interment rights in this particular case. Furthermore, the override rules found in subsection 168(5), which only relate to supplies of real property by way of sale, do not apply in this particular case.

Example 3

A cemetery operator enters into a written at-need agreement with a purchaser to supply interment rights by way of lease, licence or similar arrangement. The parties enter into the agreement on August 1, 2006, and the purchaser makes a down payment on that day. The purchaser agrees to pay the balance by making monthly installment payments on the first day of each of the next four months.

In accordance with subsection 168(2), the GST/HST in respect of the supply is payable on the earlier of the day a part of the consideration is paid and the day that part becomes due pursuant to the written agreement (i.e., August 1, 2006, and the first day of each month from September through December 2006).

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.

For your convenience, find enclosed a copy of GST/HST Memorandum 1.4, Goods and Services Tax Rulings.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (613) 957-8224.

Yours truly,

Christopher Lewis
Services and Intangibles Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

2006/08/04 — RITS 81946 — Rebill Invoices