28 March 2003 GST/HST Ruling 36961 - GST/HST and Prepaid Funeral Services

Dear XXXXX:

This is in response to a letter XXXXX. XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the sale of prepaid funeral contracts by funeral homes. We apologize for the delay in responding.

Please note that we will be responding separately to your questions concerning the application of the GST/HST to payments made from an assurance fund. XXXXX[.]

Statement of Facts

Our understanding of the facts is as follows:

•   In your legislation XXXXX all funds from the sale of a prepaid funeral contract are required to be placed into a trust account.

•   If a consumer wishes to cancel his or her contract, he or she is able to do so and is entitled to a return of his or her funds plus income earned.

•   Under the heading XXXXX under the terms and conditions of the draft prepaid funeral contract provided XXXXX XXXXX

Ruling Requested

The issue on which you need clarification pertains to the timing of payment of the HST, and former GST, when a funeral home sells a prepaid funeral to a client in the province of XXXXX.

1. Specifically, when a funeral home sells a prepaid contract for $XXXXX, when does it pay its HST, and former GST, to the CCRA? Does it remit tax at the time of sale or when the funeral is performed, possibly many years later?

2. If the ruling determines that funeral homes need not pay tax until the funeral is performed, should funeral homes be keeping the portion of the funeral contract, which is designated as tax, separate from the remaining prepaid funeral funds? The issue in question is that the money in the trust account is invested. Can potential tax money be invested?

Ruling Given

Based on the facts set out above, we rule that:

1. Any contribution amount held in trust is not subject to GST/HST until the amount is withdrawn from the trust. The funeral home is not required to account for the GST/HST on the contributions held in trust at the time they are made under the prepaid funeral arrangement. The funeral home is required to account for the GST/HST in the reporting period in which the amount for the funeral services provided under the arrangement is paid or becomes due, whichever is earlier, at the rate of tax in effect at that time.

Any amount not held in trust (e.g., a one time administration fee of 10% of the cost of the contract), whether it is pursuant to the applicable provincial legislation or the terms of the contract itself, is part of the consideration payable for the services provided by the funeral home. As such, the funeral home is required to include GST/HST in respect of the amount in determining its net tax for the reporting period in which the amount is paid or becomes due, whichever is earlier.

2. The funeral home is not required to remit up front that portion of the funeral contract, which is equal to the estimate of the GST/HST that will eventually be payable, as long as the amount is kept in a trust account, whether or not it is kept in a separate trust account. For purposes of prepaid funeral arrangements, potential tax money held in trust is not considered tax paid or payable until the time it is withdrawn from the trust account or when consideration for the funeral services provided under the arrangement becomes due. Therefore, there is nothing to preclude the investment of that money.

This ruling is subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST/HST Memoranda Series. We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal; that there are no relevant changes in the future to the Excise Tax Act, or to our interpretative policy; and that you have fully described all necessary facts and transactions for which you requested a ruling.

Comment

Under the heading XXXXX of the terms and conditions section of the draft contract of XXXXX, it is stated that:

XXXXX

Note that this condition is not in accordance with the rules set out in the GST/HST Technical Information Bulletin B-091, Timing of the Application of the GST/HST to Prepaid Funeral Arrangements. The GST/HST is payable to the funeral home when the consideration for the funeral services provided under the arrangement becomes due. Based on the information provided, the only amount of GST/HST that is payable to the Seller, who must account for this tax in its net tax and remit any net tax owing, at the time the contract is entered into, is the GST/HST in respect to the XXXXX % administrative fee, as indicated in ruling #1 above.

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