6 December 2002 GST/HST Interpretation 43470 - Application of the GST/HST to Prepaid Funeral Arrangements

Dear XXXXX:

This is in reference to XXXXX, (copy enclosed), in response to your inquiry concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to prepaid funeral arrangements.

Because there has been confusion, resulting in funeral homes accounting for tax in different ways, we have undertaken a review of our position in light of the applicable provisions of the Excise Tax Act (the ETA) with respect to the application of the GST/HST to prepaid funeral arrangements.

Interpretation Requested

What is the timing of the application of the GST/HST to prepaid funeral arrangements?

Interpretation Given

We are pleased to provide you with the enclosed Technical Information Bulletin (TIB) B-091 "Timing of the Application of the GST/HST to Prepaid Funeral Arrangements" which outlines the current CCRA position on that subject.

In general, the CCRA position is that for prepaid funeral arrangements where the contributions are held in trust pursuant to provincial legislation and/or the terms of the arrangement, the contributions are not considered to be prepayments. The funeral home will not be required to account for the GST/HST on the contributions made under the prepaid funeral arrangement and any interest that accumulates in the trust until the amounts are no longer required to be held in trust and are distributed to the funeral home. The contributions may be based on an estimate of the consideration that will be payable for the funeral services and the eventual GST/HST that will apply.

GST/HST will apply on the value of the consideration to be paid to the funeral home under the prepaid funeral arrangement at the time it is paid or becomes due to the funeral home whichever is earlier. The value of the consideration and tax payable to the funeral home under the agreement generally approximates the amount of the contributions and any interest that has accumulated in the trust. Any additional amounts payable by the purchaser or the individual's estate at the time the funeral services are provided will also be subject to the GST/HST at that time.

The funeral home will be required to account for the GST/HST on any amount that is not held in trust, whether it is pursuant to the applicable provincial legislation or the terms of the contract itself.

Additionally, where the income generated by the funds held in trust is payable directly to the funeral home, pursuant to provincial legislation and/or the terms of the arrangement, that income is considered to be part of the consideration for the services to be provided by the funeral home and is subject to the GST/HST at the time that it is paid to the funeral home. Of course, if the price charged to the client is tax-included, that portion of the amount that represents GST/HST must also be accounted for according to the usual rules.

The funeral home is not required to account for any GST/HST in respect of any funds received from the trust that are to be disbursed to the purchaser or the individual's estate.

GST/HST will also apply in the above manner where the contribution is made by the purchaser to an insurer in respect of an insurance contract whereby the insurance proceeds are payable to the funeral home as the beneficiary.

These rules are effective from the implementation of the GST on January 1st, 1991, and the HST on April 1st, 1997. However, these rules will not affect the majority of contracts where the funeral home remitted tax at the time of entering into the agreement. Funeral homes that had been remitting tax at the time of entering into prepaid agreements must comply with the rules by April 1st, 2003. If the funeral home cannot comply by April 1st, 2003, transitional rules will be in effect for contracts entered into by those homes until January 1st, 2004.

The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the Excise Tax 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 Customs and Revenue Agency with respect to a particular situation.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 957-8223.

Yours truly,

Carolle Mercier
Services and Intangibles Unit
General Operations & Border Issues Division
Excise and GST/HST Rulings Directorate