27 May 1994 GST/HST Interpretation 11745-5[2] - Application of the GST to Prepaid Funeral Arrangements

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I refer to your note received in this office on February 15, 1994, for an interpretation regarding prepaid funeral arrangements. Attached with your request were copies of letters from XXXXX dated January 24 and 26, 1994, addressed to your office. The letters described a situation involving the assignment of a prearranged funeral plan. The facts of the case are as follows:

1. A purchaser of a prearranged funeral plan pays funeral home A

(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, A can assign the plan to funeral home B

(B) pursuant to XXXXX. The effect of this transaction is that A is assigning its rights to perform the funeral services, usually at the request of the purchaser, to B.

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

Your questions are:

a) Does the assignment of the prearranged funeral constitute another supply?

b) If so, what is the value of consideration? If value is determined to be the amount transferred, what are the ramifications for grandfathered funerals?

c) Could the assignment qualify as a financial instrument? The central issue to be dealt with in this case is whether the change in suppliers has fundamentally changed the prearranged funeral plan. In other words, as a result of the change in suppliers from A to B, does the original prearranged funeral plan still exist, or has a new funeral plan been prearranged? In our view, the change is such that the prearranged funeral plan has been fundamentally altered. The prearranged funeral plan between the individual and A ceases to exist, and a new prearranged funeral plan between the individual and B has been created.

Grandfathered Prearranged Funeral Plans

In order for a funeral arrangement to be grandfathered under subsection 344(2), the arrangement for funeral services must be entered into in writing before September, 1990. Other conditions must also be met. Funds required to pay for the funeral services must be held by a trustee. Furthermore, at the time the arrangement is entered into it is reasonable to expect that all or a part of those funds will be advanced to the trustee before the individual's death. As a result of the substitution of suppliers in the prearranged funeral plan, the original agreement in writing has been fundamentally altered and a new agreement in writing now exists between the purchaser and B. Where the change in suppliers has occurred subsequent to August, 1990, the prearranged funeral plan is no longer grandfathered. Where funeral services are to be supplied after 1990, GST will apply. Given that B has accepted the assignment from A and, notwithstanding that there are no changes to the plan, B, the new supplier, is required to charge GST on the value of the consideration for the supply of the funeral service as provided for in the prearranged funeral plan.

In this situation, where the prepayment made to the funeral home is held in an account in trust due to provincial legislation, GST will apply at the time that such prepayments are made or become due, whichever is earlier.

Prearranged Funeral Plans Not Grandfathered

In those situations where the funeral arrangement was not grandfathered, the substitution of suppliers in a funeral plan has fundamentally altered this plan between the purchaser and A and creates a new plan between the purchaser and B. GST previously collected and remitted by A will be refunded to the purchaser. The new arrangement between the purchaser and B will attract GST. Given that B has accepted the assignment from A and that there are no changes to the plan other than the supplier, B, the new supplier, is required to charge GST on the value of the consideration for the supply of the funeral service as provided for in the prearranged funeral plan. Of course, A could transfer over the GST to B, on the individual's behalf.

Assignment of an Interest

The trust was created for the individual and funds from the trust will be used to pay for funeral services when provided by the funeral home. As a result of the assignment of the funeral plan from A to B in accordance with provincial statute, and by consent of the purchaser, funds held in trust for the purchaser's funeral are transferred from A's account to that of B. As stated above, the central issue in this case is whether the original prearranged funeral plan has been replaced by a new plan created as a result of the assignment with the new supplier. The question of whether an assignment of an interest in a trust qualifies as a financial instrument has no bearing upon whether the prearranged funeral plan has been fundamentally changed, and whether GST will apply to the new arrangement.

Should you have any questions regarding this case, please contact Owen Newell at (613) 954-4280.

H.L. Jones
Director
General Tax Policy
Policy and Legislation