ATO ID 2008/41: GST and the transfer between funeral providers of rights and obligations under a prepaid funeral agreement: the original funeral provider accounts on a basis other than cash (non-cash basis)
Date of decision: 28 February 2008
Business line: Indirect Tax

Issue
Are there any goods and services tax (GST) implications when rights and obligations under a prepaid funeral agreement are transferred from the original funeral provider, who accounts on a non-cash basis, to the new funeral provider who accounts on a non-cash basis?

Decision
No, there are no GST implications when rights and obligations under a prepaid funeral agreement are transferred from the original funeral provider, who accounts on a non-cash basis, to the new funeral provider who accounts on a non-cash basis.

Facts
A funeral provider and a client enter into a prepaid funeral agreement (the agreement) on or after 1 July 2000. The funeral provider is registered for GST and accounts on a non-cash basis. Under the agreement, the funeral provider is required to supply a funeral service to the client at some future point in time. The consideration for the right to receive the future funeral service is paid as follows: The client's benefit entitlement to the amount in the independent investment fund (and any interest earned on the funds) is assigned to the funeral provider. The funeral provider is making a supply of a right to receive a funeral service for consideration and this is a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) (assuming that the other requirements of section 9-5 are met). The funeral provider remits GST on the price of the funeral service agreed to in the agreement as the amount is attributable under Division 29 of the GST Act to the tax period in which any of the consideration for the supply is received or an invoice is issued. The funeral provider receives the total amount invested in the independent investment fund after a death certificate has been presented to the fund and the funeral service has been provided. When the funeral service is provided it is not considered to be a taxable supply as no additional consideration is received. After the agreement is made, the client decides to transfer the rights and obligations under the agreement from the original funeral provider to a new funeral provider. The new funeral provider is registered for GST and accounts on a non-cash basis. The client, the original funeral provider and the new funeral provider mutually agree in writing to the transfer. The client and the new funeral provider do not enter into a new prepaid funeral agreement. There are no upgrades or variations to the funeral service that was agreed to with the original funeral provider. The independent investment fund is notified of the transfer. The entitlement to the amount in the independent investment fund (and any interest earned on the funds) is assigned to the new funeral provider.

Reasons for decision
Summary: The transfer of the rights and obligations under the agreement does not result in changes to the terms and conditions that were agreed to between the original funeral provider and the client on entry into the agreement. The transfer does not cancel the agreement. The new funeral provider agrees to undertake all the rights and obligations under the original terms and conditions of the agreement. That is, in place of the original funeral provider the new funeral provider undertakes to provide a funeral service, at some future point of time, according to the terms and conditions of the agreement. When the transfer occurs, the new funeral provider does not make a taxable supply of a right to receive a funeral service to the client. That taxable supply was made by the original funeral provider, who has already remitted the GST for the supply. Further, when the new funeral provider supplies the funeral service, the supply will not be taxable as it is not made for consideration. As a result, when the rights and obligations under the agreement are transferred there are no GST implications.

Legislative references: A New Tax System (Goods and Services Tax) Act 1999 section 9-5 Division 29
Subject references: Goods and services Tax GST supply Funeral industry