8 January 2003 GST/HST Interpretation 43463 - Payments Made to Clergy, Church Organists and Soloist/Musicians

Dear XXXXX:

Thank you for your facsimile of XXXXX, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to payments made to church organists, soloists/musicians and to clergy to perform funerals.

There are two distinct situations:

•   The clergy makes no specific request for payment for performing a funeral service, however, the family decides to make a donation through the funeral home that is providing the funeral arrangement. The payment by the funeral home is done as a service to the family and no money is retained by the funeral home for this service; and

•   There is an amount specified by the clergy, which is then forwarded, again, through the funeral home to the Church or clergy. This is also done with no money retained by the funeral home for this service.

Interpretation Requested

Whether GST/HST is payable if the amount paid to the clergy to perform a funeral is specified, or when it is a donation.

If any, when does the GST/HST become payable and by whom?

Who is responsible for remitting the GST/HST?

These questions are also raised in regards to Church organists and soloists/musicians.

Interpretation Given

Generally, all supplies of goods and services by a registrant are subject to GST/HST at 7% or 15%, as the case may be. There are exceptions for certain goods and services that are exempt or zero-rated, but these are by way of specific exception. There are no such exceptions for goods and services provided by funeral homes that are not charities or non-profit organizations.

With respect to disbursements, there are two possible situations; first, where a funeral home acquires goods and services of another in the course of supplying a funeral service to its client, and second, where a funeral home, as agent of a client, acquires goods and services on behalf of the client.

Where a funeral home's disbursement is for an expense incurred in the course of supplying a funeral service to its client, this cost is an input of the funeral home in providing the funeral service. In this case, GST/HST is charged to the client by the funeral home on the reimbursement of the expense to the extent that GST/HST is payable for the funeral service provided by the funeral home. Generally, the funeral home will be required to collect the GST/HST when the invoice in respect of the expense is issued. The funeral home must account for this tax in its net tax for the reporting period during which the tax is payable by the client and remit any net tax owing for the period. In addition, the funeral home may claim an input tax credit (ITC) for any GST/HST paid or payable in respect of the expense provided that the conditions for claiming an ITC are met.

For example, if a funeral home acquires the service of an organist or soloist who is registered for GST/HST purposes and the fee is $100 plus $7 GST, the funeral home, if eligible, will claim an ITC of $7 and then charge the client $100 plus $7 GST if the funeral service provided by the funeral home is subject to GST at 7%. If the organist or soloist is not required to charge GST/HST e.g., the organist/soloist is a small supplier who is not registered for GST/HST purposes, the funeral home will not claim an ITC, as GST/HST is not payable to the organist or soloist. However, the funeral home will charge the client $100 plus $7 GST if the funeral service provided by the funeral home is subject to GST at 7%.

Similarly, where a funeral home pays an amount, e.g., $200, to the clergy for its service of performing a funeral rite and that service is exempt of GST/HST, the funeral home will not claim an ITC. An ITC would be available to the funeral home if the clergy provides a taxable supply and $214 (i.e., $14 GST) is payable to the clergy. In addition, the funeral home will charge the client $200 plus $14 GST if the funeral service provided by the funeral home is subject to GST at 7% whether the supply by the clergy is exempt or taxable. Where the amount given to the clergy by the funeral home is a donation, made otherwise than as agent of the client, no GST/HST will be payable to the clergy, however, GST/HST will apply in the same manner described above when the funeral home seeks reimbursement from the client.

For your information, GST/HST does not apply to a donation where the donation is not consideration for a supply. If a donor receives something of value, the amount of the donation could be considered consideration for a supply. A gift at common law is considered a voluntary transfer of property without consideration. No right, privilege or material advantage may be conferred on the donor as a consequence of the gift. Accordingly an amount of money given to the clergy on a voluntary basis and for which the donor does not receive any advantage or material benefit will be considered a donation. Consequently, if the funeral home or client, as the case may be, has the choice of whether or not to make a contribution to the clergy, any amount contributed will not be considered to be consideration for a supply even if the funeral home or client is encouraged by the clergy to make a donation. Moreover, an amount given to the clergy for which an official donation receipt may be issued under the Income Tax Act is not regarded as consideration for a supply.

Where a funeral home incurs an expense as agent of a client, no GST/HST is charged by the funeral home on the subsequent reimbursement of the expense. In addition, the funeral home is not entitled to claim an ITC in respect of this disbursement.

Using the examples above, if a funeral home acquires the service of an organist or soloist as agent of the client and the fee is $100 plus $7 GST, the funeral home will not claim an ITC and will not charge or account for GST/HST in its net tax when it seeks a reimbursement of the $107 from its client. In this case, the $7 GST is payable by the client and is paid by the funeral home on the client's behalf. The subsequent timing of the reimbursement by the client to the funeral home of the $7 GST paid on its behalf is a matter to be addressed by the parties. Likewise, if the organist or soloist is not required to charge GST/HST, the funeral home will not claim an ITC and will not charge the client GST/HST when it seeks a reimbursement of the $100.

Similarly, where a funeral home pays an amount, e.g., $200, as agent of a client to the clergy for its service of performing a funeral rite and that service is exempt of GST/HST, the funeral home will not claim an ITC and will not charge the client GST/HST when it seeks a reimbursement of the $200 from the client. Where the amount given to the clergy by the funeral home is a donation made on behalf of the client as its agent, no GST/HST will be payable to the clergy and GST/HST will not apply when the funeral home seeks reimbursement from the client.

The enclosed draft policy statement P-182, Determining The Meaning of "Agent" and "Agency" addresses the issue of agency. For GST/HST purposes, a person is an agent acting on behalf of another person if the person is an agent at law. It is a question of fact whether an agency relationship exists. Where an agency relationship exists, there should be some evidence of the existence of the relationship. For example, the contract between the funeral home and the client could specify that the funeral home will act as agent of the client for specific acquisitions of goods and services on the client's behalf. In that case, the expenses invoiced to the client and paid by the funeral home as agent will be treated as having been incurred by the client.

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.

For your convenience, find enclosed a copy of section 1.4 of Chapter 1 of the GST/HST Memoranda Series.

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