10 July 2003 GST/HST Interpretation 42257 - Application of Harmonized Sales Tax (HST) to Prearranged Funerals Entered into Within the Province of

Dear XXXXX:

Thank you for your letter XXXXX, with attachments, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the operations of XXXXX. Your letter was originally sent to our Atlantic GST/HST Rulings Centre, but was subsequently transferred to this office for direct reply. We apologize for the delay in responding.

As the transactions described in this letter all take place in XXXXX, reference will be made to the HST only.

Statement of Facts

Our understanding of the facts is as follows:

•   XXXXX.

•   The XXXXX also governs the treatment of pre-arranged funerals. Subsection XXXXX of the XXXXX defines a XXXXX to mean XXXXX[.]

•   Subsection XXXXX of the XXXXX requires XXXXX[.]

•   Subsection XXXXX of the XXXXX Regulations stipulates that XXXXX[.]

•   The seller of prearranged funerals may retain no more than XXXXX % of the amounts within the trust account on account of administrative expenses under section XXXXX of the XXXXX and section XXXXX of the XXXXX.

•   The Registrar of Cemetery and Funeral Services must approve the form and content of all prearranged funeral contracts.

•   You have included examples of two such agreements that have been approved by the Registrar.

Both agreements provide that

XXXXX

•   In the remittance of their tax obligations, XXXXX have been relying upon the direction of Mr. H.L. Jones, Former Director, General Tax Policy, CCRA, as outlined in his correspondence XXXXX which indicated that:

XXXXX

•   In case XXXXX, the CCRA ruled that:

XXXXX

Ruling Requested

You are requesting a ruling on the application of the HST to prearranged funeral agreements entered into within the Province of XXXXX taking into consideration the relevant provincial legislation and the two sample agreements provided for our review.

In accordance with section 1.4 of the GST/HST Memoranda Series, an application ruling can only be issued with reference to a clearly defined fact situation of a particular registrant. Rulings are issued upon request and where the taxpayer has presented all the relevant facts such as the nature of the transactions undertaken, detailed descriptions of services or property involved, the parties involved in all the transactions and relevant documentation such as invoices, contracts and other pertinent agreements. Where all the relevant facts are not provided, an interpretation may be issued. I am pleased to provide you with an interpretation which will explain how the HST applies to the supplies described in your letter.

Interpretation Given

Your views in regard to the application of the HST to the prearranged funeral agreements were given careful consideration. Nonetheless, after reviewing your submission, the XXXXX and Regulations as well as the two sample agreements provided, we hereby confirm that the current CCRA position is outlined in the enclosed Technical Information Bulletin (TIB) B-091, Timing of the Application of the GST/HST to Prepaid Funeral Arrangements.

Basically, our position is that for prearranged funeral agreements where the contributions are held in trust pursuant to provincial legislation, XXXXX and/or the terms of the agreement, 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 prearranged funeral agreement 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.

Please note that this letter supercedes previous rulings and interpretations on the subject.

The funeral home is required to account for the HST in calculating its net tax for the reporting period in which an amount is paid or becomes due, whichever is earlier, on:

Any amount not held in trust (e.g., administration fee not required to be held in trust),

Any amount disbursed from the trust to the funeral home (e.g., interest) during the life of the trust or when the funeral services are provided,

Any additional amount paid to the funeral home at the time the services are provided,

Any amount retained by the funeral home when an agreement is cancelled, terminated or discontinued.

Disbursements

With respect to disbursements, there are two possible situations; first, where a funeral home acquires property 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 property 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, HST is charged to the client by the funeral home on the reimbursement of the expense to the extent that HST is payable for the funeral service provided by the funeral home. Generally, the funeral home will be required to collect the 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 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 HST purposes and the fee is $100 plus $15 HST, the funeral home, if eligible, will claim an ITC of $15 and then charge the client $100 plus $15 HST if the funeral service provided by the funeral home is subject to the HST. If the organist or soloist is not required to charge HST e.g. the organist or soloist is a small supplier who is not registered for HST purposes, the funeral home will not claim an ITC, as HST is not payable to the organist or soloist. However, the funeral home will charge the client $100 plus $15 HST if the funeral service provided by the funeral home is subject to HST.

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 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 $230 (i.e., $30 HST) is payable to the clergy. In addition, the funeral home will charge the client $200 plus $30 HST if the funeral service provided by the funeral home is subject to HST at 15% 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 HST will be payable to the clergy, however, HST will apply in the same manner described above when the funeral home seeks reimbursement from the client.

For your information, 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 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 $15 HST, the funeral home will not claim an ITC and will not charge or account for HST in its net tax when it seeks a reimbursement of the $115 from its client. In this case, the $15 HST 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 $15 HST paid on its behalf is a matter to be addressed by the parties. Likewise, if the organist or soloist is not required to charge HST, the funeral home will not claim an ITC and will not charge the client HST when it seeks a reimbursement of the $100.

The enclosed draft policy statement P-182, Determining the Meaning of "Agent" and "Agency" addresses the issue of agency. For 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 property 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