Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues: Whether one can transfer an amount from an RRSP to a Prepaid Funeral Trust on a tax-assisted basis.
Position: No.
Reasons: Amounts out of an RRSP are taxed on withdrawal unless transferred to another registered plan or eligible annuity; furthermore, interest in a pre-paid funeral trust is not a qualified investment for an RRSP.
XXXXXXXXXX 992052
July 27, 1999
Dear XXXXXXXXXX:
RE: Transfers From Registered Retirement Savings Plan (“RRSP”)
to an Eligible Funeral Arrangement (“EFA”)
This is in reply to a facsimile transmission of July 22, 1999, from the Windsor Tax Services Office, requesting that we write to you concerning transfers of property from an RRSP to a Prepaid Funeral Trust or EFA as referred to herein. You ask whether it is possible to transfer an amount from one to the other without incurring tax.
As we discussed in our telephone conversation (Spice/XXXXXXXXXX ) of July 26, 1999, there is no provision in the Income Tax Act (the “Act”) for the transfer of property from an RRSP to an EFA on a tax-free or tax-deferred basis.
For further comments on transfers from an RRSP which are accommodated under the Act, please refer to the enclosed Interpretation Bulletin IT-528 (Transfers of Funds Between Registered Plans), in particular paragraphs 5-7. Generally speaking, the Act permits such transfers only to another RRSP or to a registered pension plan, or to a vehicle which immediately provides for a retirement income, such as registered retirement income fund or eligible annuity.
With respect to transfers to an EFA, please refer to the enclosed Interpretation Bulletin IT-531 (Eligible Funeral Arrangements), in particular paragraph 17. The only transfer which can occur under the Act on a tax-deferred or tax-free basis is a direct transfer of an amount by a custodian of one EFA to another. Amounts contributed from any other source to an EFA are made on an after-tax basis.
To summarize, because the purposes for an RRSP and EFA are not the same, the Act does not treat contributions to an RRSP and EFA in the same way; similarly, when the contributions and earnings are taken out of such plans, the Act does not provide any tax incentive for transfers between such plans. Should you wish to pursue a discussion concerning the tax policy for such a result, please contact the Tax Legislation Division of the Department of Finance, L’Esplanade Laurier, Ottawa, Ontario, K1A 0G5.
Reference was also made to the “qualified investment” rules for an RRSP and whether an investment in an EFA was a “qualified investment” for an RRSP. Monies contributed to an EFA are either placed in trust or held by a custodian. In the former case, the interest in the trust that the individual obtains from a contribution is not a qualified investment for an RRSP. In the latter case, the monies are held by a custodian who must be a “qualifying person” as defined in subsection 148.1(1) of the Act. Such a person is one who is licensed or otherwise authorized under the laws of a province or territory to provide funeral or cemetery services for individuals. An amount of money on deposit which such a qualifying person is also not a qualified investment for an RRSP. Even if the EFA trust or custodian invested the monies in an investment which itself would be a qualified investment for an RRSP, the investment would be the property of the EFA and not of the RRSP so its status would be irrelevant.
To conclude, any property taken out of an RRSP to contribute to an EFA is subject to tax in the hands of the RRSP annuitant.
We trust this explains the tax consequences of such a transfer satisfactorily.
Yours truly,
P. Spice
for Director
Financial Industries Division
Income Tax Rulings &
Interpretations Directorate
