Ontario and British Columbia: Transition to the Harmonized Sales Tax - Prepaid Funeral and Cemetery Arrangements and Interment Property

GST/HST Info Sheet GI-074
May 2011

This info sheet replaces the version dated May 2010. It has been revised to reflect the Regulations Amending Various GST/HST Regulations, No. 2.

Introduction

This info sheet explains whether the goods and services tax (GST) or the HST applies to funeral or cemetery services supplied under a prepaid arrangement in Ontario or British Columbia. It also explains whether the GST or the HST applies to supplies of interment property in Ontario or British Columbia for periods that include July 1, 2010.

In this info sheet, all operators referred to in the examples are GST/HST registrants.

Meaning of significant terms used in this info sheet

"Cemetery services" means services that are, or are to be, supplied in respect of places of interment. It includes services such as opening a grave, sealing a tomb, and interring human remains. Also, it includes property such as burial vaults, urns, gravestones, grave liners or markers for use in a cemetery, mausoleum or columbarium, but does not include interment property.

"Funeral services" means services that are, or are to be, supplied in respect of the funeral or final disposition of a deceased individual. It includes property and services such as those provided for the care and embalming of the deceased individual or in connection with the funeral rite of the deceased individual, and the transportation of the deceased individual. Also, it includes property such as coffins, headstones or any other property (e.g., a casket or monument) relating to the funeral or final disposition of a deceased individual (such as burial or cremation).

"Interment property" means real property supplied for the interment, entombment or inurnment of human remains in any of the following: a lot or plot in a cemetery; a tomb, crypt, compartment or vault in a mausoleum; a niche or compartment in a columbarium; or any similar place used for the interment of human remains.

"Operator" means the operator of a funeral home or a place of interment.

"Place of interment" includes a cemetery, mausoleum, or columbarium.

"Prepaid arrangement" means an arrangement under which an operator contracts with a purchaser to supply certain funeral or cemetery services in respect of one or more named individuals upon the death of the individual(s). For purposes of this info sheet, prepaid arrangements must be in writing and may include electronic documents that can be printed.

Funeral and cemetery services

To determine whether GST or HST applies to funeral or cemetery services supplied under a prepaid arrangement in Ontario or British Columbia, operators must consider the following:

• when the prepaid arrangement was entered into;
• whether it was reasonable, at the time the prepaid arrangement was entered into, to expect that all or at least part of the amount to pay for the funeral or cemetery services would be paid (or put into trust) before the individual's death; and
• when the funeral or cemetery services under the prepaid arrangement are provided.

For details on how to determine whether GST or HST applies to services (other than funeral or cemetery services) supplied in connection with a prepaid arrangement, see the information under the heading "Other services."

Prepaid arrangements entered into before September 1990

Regardless of when the funeral or cemetery services are provided, neither GST nor HST applies to funeral or cemetery services supplied under a prepaid arrangement entered into before September 1990. This rule only applies if it was reasonable, at the time the prepaid arrangement was entered into, to expect that all or at least part of the amount to pay for the funeral or cemetery services would be paid (or put into trust) before the individual's death.

Prepaid arrangements entered into after August 1990 and before July 2010

GST applies to funeral or cemetery services supplied under a prepaid arrangement entered into after August 1990. Therefore, the federal part of the HST (i.e., the equivalent to the GST) applies to funeral or cemetery services supplied under a prepaid arrangement entered into after August 1990.

Regardless of when the funeral or cemetery services are provided, the provincial part of the HST does not apply to funeral or cemetery services supplied under a prepaid arrangement entered into before July 2010. This rule only applies if it was reasonable, at the time the prepaid arrangement was entered into, to expect that all or at least part of the amount to pay for the funeral or cemetery services would be paid (or put into trust) before the individual's death.

Prepaid arrangements entered into on or after July 1, 2010

HST applies to funeral or cemetery services supplied under a prepaid arrangement entered into on or after July 1, 2010.

Amounts paid (or put into trust) before the individual's death

Generally, at the time an operator enters into a prepaid arrangement with a purchaser, the purchaser agrees to either:

• pay all of the amount for the funeral or cemetery services by making a lump sum payment to the operator before the individual's death;
• pay all or at least part of the amount for the funeral or cemetery services by making a series of payments (e.g., instalment payments) to the operator before the individual's death; or
• purchase an insurance policy under which the proceeds from the policy at the time of the individual's death are payable to the operator for the funeral or cemetery services.

If at the time a prepaid arrangement is entered into the purchaser agrees to do any of the above, the CRA considers it reasonable, at the time the arrangement is entered into, to expect that all or at least part of the amount to pay for the funeral or cemetery services will be paid (or put into trust) before the individual's death.

Other services

Some operators charge fees for other services that are not funeral or cemetery services, but are supplied in connection with prepaid arrangements. Examples of such fees include set-up fees, administration fees, cancellation fees, and instalment payment charges (also known as finance charges or service charges).

These fees are regarded as amounts paid for services (other than funeral or cemetery services) for purposes of determining whether GST or HST applies during the period that includes the July 1, 2010 implementation date of the HST in Ontario and British Columbia.

To determine whether GST or HST applies to such services performed during the period that includes July 1, 2010, operators must consider:

• when the service is performed;
• when an amount for the service becomes due; and
• whether an amount is paid without having become due.

Refer to Appendix A for more information on when an amount becomes due and when an amount is paid without having become due.

When 90% or more of the service is performed before July 2010

When 90% of more of the service is performed before July 2010, only the GST applies to any amount that becomes due or is paid without having become due for the service.

Where more than 10% of the service is performed on or after July 1, 2010

When more than 10% of the service is performed on or after July 1, 2010:

• Regardless of when the service is performed, GST applies to any amount that becomes due or is paid without having become due on or before October 14, 2009.
• Regardless of when the service is performed, GST applies to any amount that becomes due or is paid without having become due after October 14, 2009 and before May 2010. However certain purchasers may have to self-assess the provincial part of the HST. For more information, refer to "Self-assessment of the provincial part of the HST" in GST/HST Info Sheet GI-056, Ontario and British Columbia: Transition to the Harmonized Sales Tax – Services.
• When an amount becomes due or is paid without having become due on or after May 1, 2010:
• GST applies to any amount that relates to the portion of the service performed before July 2010; and
• HST applies to any amount that relates to the portion of the service performed on or after July 1, 2010.

Accounting for the GST/HST charged on other services

The previous rules explain whether GST or HST applies to supplies of services (other than funeral or cemetery services). The following rules explain who accounts for the tax and when it should be accounted for.

When an amount becomes due or is paid after October 14, 2009 and before May 2010

When an amount becomes due or is paid without having become due after October 14, 2009 and before May 2010, the operator charges the purchaser GST and accounts for the tax in its GST/HST return according to the normal rules. Certain purchasers have to self-assess the provincial part of the HST. For more information, refer to "Self-assessment of the provincial part of the HST" in GST/HST Info Sheet GI-056.

When an amount becomes due or is paid on or after May 1, 2010 and before July 2010

When GST applies to a service or a portion of a service, the operator accounts for the GST in its GST/HST return according to the normal rules.

When HST applies to a service or a portion of a service, the operator accounts for:

• the 5% federal part of the HST in its GST/HST return according to the normal rules; and
• the provincial part of the HST in the GST/HST return for the reporting period that includes July 1, 2010.

When an amount becomes due or is paid on or after July 1, 2010

When an amount becomes due or is paid without having become due on or after July 1, 2010, the operator accounts for the HST in its GST/HST return according to the normal rules.

Funeral and cemetery services provided at the time of need

Generally, a prepaid arrangement sets out certain funeral or cemetery services to be supplied by the operator at the time of the individual's death. The relief from the provincial part of the HST, as discussed under the heading, "Prepaid arrangements entered into after August 1990 and before July 2010" in this info sheet, only applies to the funeral or cemetery services included in the prepaid arrangement and not to other funeral or cemetery services provided at the time of need.

Upgrading or adding services

It is common for a deceased individual's estate to request that the operator either upgrade some of the funeral or cemetery services included in the prepaid arrangement or supply additional funeral or cemetery services that were not included in the prepaid arrangement.

Regardless of when a prepaid arrangement was entered into, if at the request of a deceased individual's estate the operator:

• substitutes, on or after July 1, 2010, a certain funeral or cemetery service included in the prepaid arrangement with a similar kind or class of funeral or cemetery service, but of an increased value, HST applies to the amount that is the difference between the amounts to pay for those services; or
• adds, on or after July 1, 2010, new funeral or cemetery services that are supplied in connection with the prepaid arrangement, HST applies to any amount to pay for those new services.

In both cases, the HST collectible by the operator is based on the HST rate that applies on the earlier of the date when the amount becomes due or is paid without having become due.

Cancelling prepaid arrangements

At the time of an individual's death, some operators cancel the prepaid arrangement and replace it with an at-need arrangement. Where this happens, the funeral or cemetery services are no longer supplied under a prepaid arrangement.

Regardless of when a prepaid arrangement is entered into, if a prepaid arrangement is cancelled on or after July 1, 2010 and replaced with an at-need arrangement, HST applies to any amount to pay for the funeral or cemetery services supplied under the at-need arrangement. The HST collectible by the operator is based on the HST rate that applies on the earlier of the date when the amount becomes due or is paid without having become due.

If an at-need arrangement is entered into on or after July 1, 2010 only for the purpose of fulfilling a prepaid arrangement under which the funeral or cemetery services were not subject to the provincial part of the HST and converting the prepaid prices to prevailing retail prices at the time of the individual's death, the provincial part of the HST does not apply to any amount to pay for the funeral or cemetery services included in the prepaid arrangement. However, if at the request of a deceased individual's estate the at-need arrangement includes:

• a substitution of a certain funeral or cemetery service included in the prepaid arrangement with a similar kind or class of funeral or cemetery service, but of an increased value, HST applies to the amount that is the difference between the amounts to pay for those services; or
• new funeral or cemetery services that are supplied in connection with the prepaid arrangement, HST applies to any amount to pay for those new services.

In both cases, the HST collectible by the operator is based on the HST rate that applies on the earlier of the date when the amount becomes due or is paid without having become due.

Interment property

Interment property is a form of real property for GST/HST purposes. Operators of places of interment generally provide interment property by way of lease, licence or similar arrangement. Given the specific use and purpose of the lot, plot, crypt, etc., and the fact that the purchaser may have little or no control over it, supplies of such real property are generally supplies made by way of licence.

GST applies to supplies of interment property made by way of lease, licence or similar arrangement where the written agreement for the supply was entered into before July 2010.

HST applies to supplies of interment property made by way of lease, licence or similar arrangement where the written agreement for the supply is entered into on or after July 1, 2010.

If the operator collects HST in respect of a supply of interment property made by way of lease, licence or similar arrangement under a written agreement entered into before July 2010, the person acquiring the interment property may seek a refund of the provincial part of the HST from the operator. If the operator does not refund the provincial part of the HST, the person may submit a rebate for tax paid in error by filing Form GST189, General Application for Rebate of GST/HST

Appendix A - When an amount becomes due or is paid without having become due

The following rules explain when an amount becomes due and when an amount is paid without having become due. These rules apply to services and supplies of tangible and intangible personal property.

Amount becomes due

Generally, an amount for a supply becomes due on the earliest of the following days:

• the date of an invoice for that amount for the supply;
• the day the supplier first issues that invoice for the amount;
• if there is an undue delay in issuing that invoice, the day the supplier would have issued the invoice; and
• the day the client is required to pay that amount under a written agreement (other than a written agreement for the supply of property by way of lease, licence or similar arrangement).

An amount for a supply of property made by way of lease, licence or similar arrangement under a written agreement (e.g., a supply of an interment right by way of licence) becomes due on the day the purchaser is required to pay that amount pursuant to the written agreement.

For information on what is a written agreement for GST/HST purposes, refer to GST Memorandum 300-6-4, Agreements in Writing.

Amount is paid without having become due

An amount is paid without having become due when a client pays an amount for a supply:

• before the date of an invoice, or before a supplier issues, or would have issued, the invoice;
• before the client is required to pay the amount under a written agreement (other than a written agreement for the supply of property by way of lease, licence or similar arrangement) and no invoice has been issued; or
• before the client is required to pay the amount under a written agreement for the supply of property by way of lease, licence or similar arrangement.

More than one invoice or payment

Sometimes, more than one amount becomes due or is paid without having become due. This could happen when, for example, a supplier issues more than one invoice or when the client is required to make more than one payment under a written agreement. In this case, for each amount, the supplier must determine whether GST or HST applies. The supplier cannot, for example, just apply the HST on the final amount or on the total amount payable for the service.

Date modified:

2011-05-17