5 March 2003 GST/HST Ruling 44300 - Timing of the Application of the GST/HST to Prepaid Funeral Arrangements

Dear XXXXX:

Thank you for your facsimile XXXXX in regards to the rules found in Technical Information Bulletin ("Bulletin") B-091, concerning the timing of the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to prepaid funeral arrangements.

Statement of Facts

Our understanding of the facts is as follows:

The second paragraph on page one of the Bulletin stipulates that GST/HST in respect of prepayments (for property and services not yet provided) is payable at the time the payment becomes due or is paid, whichever is earlier. It then goes on to state that this rule does not apply to contributions held in trust pursuant to prepaid funeral arrangements.

In respect of your prepaid contracts, your customers have the option of paying the purchase price in full at the time of entering into the contract or electing to purchase on an instalment basis.

Typically, the terms can range up to five years and payments are made on a monthly basis.

In accordance with statutory requirements, which vary among jurisdictions, the company is required to set aside with a corporate trustee, anywhere from 85% to 100% of the receipts from prepaid funeral arrangements.

According to the Bulletin, amounts not held in trust are considered part of the consideration payable by the customer and as such, the company must include GST/HST in respect of the amount in determining its net tax for the reporting period.

The section titled Amounts not held in trust in the Bulletin seems to indicate that the GST/HST should be remitted the earlier of when an instalment payment is due or paid, but you would like this confirmed.

The second issue is in respect of trusting the GST/HST collected. The Bulletin does not specify that any estimate of the GST/HST owing under the prepaid funeral arrangement must be placed into trust with the principal contributions.

Ruling Requested

1. When does the company have to remit the GST/HST pertaining to that portion of an instalment payment, which does not have to be trusted, is it at the time that the instalment payment is due or when it is actually paid?

2. From a system/record keeping standpoint you may want to keep the GST in a separate trust account. If the GST/HST collected was not put into trust with the principal contributions would you have to remit up front?

3. As well, you may wish to pool the GST collected as opposed to keeping it in individual accounts. Does the CCRA see any problems with this approach?

Ruling Given

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

1. The funeral home is required to include GST/HST in respect of that portion of an instalment payment, which does not have to be trusted, in determining its net tax for the reporting period in which that portion of an instalment is paid or becomes due, whichever is earlier.

2. Any contribution amount held in trust is not subject to GST/HST until the amount is withdrawn from trust. This would include any amount equal to the estimate of GST/HST that will eventually be payable, whether or not the amount is kept in a separate trust account.

3. Any amount equal to an estimate of the GST/HST eventually payable that is pooled in a trust with other trusted amounts would not attract tax until withdrawn from the trust, provided it meets provincial legislation requirements as a trusted amount for a person.

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 transaction(s) for which you requested a ruling.

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