4 February 2003 External T.I. 2002-015298D - Eligible Funeral Arrangement

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

Principal Issues: Who has authority to hold contributions to an Eligible Funeral Arrangement in an account.

Position: Refer to the terms of the Arrangement or to provincial legislation.

Reasons: Paragraph 20 of IT-531.

XXXXXXXXXX 	2002-015298
		Yves Moreno
 Attention: XXXXXXXXXX 

February 4, 2003

Dear XXXXXXXXXX:

Re: Eligible Funeral Arrangements

This is in reply to your letter of July 15, 2002, in which you ask if the XXXXXXXXXX can hold funds from an eligible funeral arrangement as defined in section 148.1 of the Income Tax Act (the "Act") and, if so, which sections of the Act give authority to hold such funds. Should our conclusion be that the XXXXXXXXXX has authority to hold funds from an eligible funeral arrangement, you also asked in our telephone conversation of October 28, 2002, if it is required to issue any T5 slips.

Your request appears to relate to a proposed transaction and, accordingly, should be the subject of a request for an advance income tax ruling submitted in accordance with the guidelines set out in Information Circular 70-6R5 Advance Income Tax Rulings dated May 17, 2002. Consequently, while we are unable to comment on your specific situation, we can offer the following general comments.

Section 148.1 of the Act provides that the person who establishes and maintains the eligible funeral arrangement (the "EFA") must be a person licensed or authorized under the laws of a province to provide funeral or cemetery services (the "qualifying person"). It also provides that there must be one or more custodians. If there is only one custodian, the custodian and the person who establishes and maintains an EFA can be the same person.

The only requirement provided in the Act with respect to the management of the EFA is that it must be maintained by the qualifying person. As mentioned in paragraph 20 of Interpretation Bulletin IT-531, Eligible Funeral Arrangements, dated January 29, 1999, applicable provincial legislation determines how the contributions are to be held:

20. When a qualifying person (e.g., a funeral director or cemetery operator) receives contributions under an EFA, the contributions may be required by the applicable provincial legislation or by the terms of the arrangement itself

(a) to be held in a trust governed by the arrangement (the trust would be a separate person for income tax purposes and the trustee of the trust would be a custodian under the arrangement - see 4 above); or

(b) to be held in an account with a financial institution or other authorized person (in this case, the qualifying person would be a custodian under the arrangement - see 4 above).

A requirement that contributions under an EFA be held in the manner described in (a) or (b) above and not withdrawn (except to pay certain amounts allowed by the applicable provincial legislation or the terms of the arrangement) usually exists until the qualifying person has provided the agreed-upon funeral or cemetery services or until the arrangement is cancelled....

After having analysed the Funeral Directors and Establishments Act ("FDEA"), you conclude that the XXXXXXXXXX can hold in an account the amount of the contributions received under an EFA.

Section 34 of the FDEA provides that "every person who receives a payment under a prepaid contract shall hold the amount of the payment together with all income accrued thereon in trust until it is disbursed in accordance with this Act and the regulations". Subsection 46(1) FDEA provides that "the Lieutenant Governor in Council may make regulations, (1) prescribing the manner in which trust accounts shall be kept and accounted for; [...] (3) prescribing the duties of depositories with respect to trust funds held under this act". Regulation 470, Amended to O. Reg. 194/01 (the "Regulation") was adopted accordingly. We refer you to that regulation, more specifically to sections 15 to 25, to ascertain how prepaid amounts shall be handled. Subsections 16(1) and (3) of the Regulation provide that:

16. (1) Every operator of a funeral establishment or transfer service shall invest prepayment funds or shall dispatch such funds for investment by registered mail within five business days of their receipt. R.R.O. 1990, Reg. 470, s. 16 (1).

[...]

(3) If prepayment funds are to be deposited before their investment, the deposit shall be made to the Funeral Directors and Establishments Act Trust Account described in section 18. R.R.O. 1990, Reg. 470, s. 16 (3).

Section 18 then provides that:

18. (1) Every operator of a funeral establishment or transfer service that deposits prepayment funds before their investment shall maintain a separate trust account in a branch of a depository located in Ontario which shall be designated as the "Funeral Directors and Establishments Act Trust Account".

Finally, section 20 of the Regulation provides how the amount is to be invested.

The word "depositary" is defined in section 1 FDEA. Therefore, in our opinion, the XXXXXXXXXX may hold funds deposited by a qualifying person (see paragraph 20(b) of IT-531 quoted above) provided that it is a depositary under the FDEA. The determination of whether it is a depositary under the FDEA should be directed to the relevant provincial authorities.

As far as the obligation to issue a T5 slips, paragraph 15 of IT-531 reads as follows:

Paragraph 201(1)(f) of the Income Tax Regulations (which took effect for payments made after 1995) requires that an information return be made in prescribed form - i.e., a T5 Summary and the related T5 slips (or on magnetic media) - by a person (e.g., a custodian) paying an amount that must be included in the income of the recipient under subsection 148.1(3). By virtue of subsection 205(1) of the Regulations, this information return must be filed (without notice or demand) on or before the last day of February of the year following the calendar year for which the amount is paid.

We also refer you to the T5 Guide "Return of Investment Income" for more information.

For example, a T5 slip would have to be issued by every person who pays an amount to a Canadian resident as or on account of an amount that is required to be included in computing a person's income under subsection 148.1(3) of the Act (Paragraph 201(1)(f) of the Regulations).

A T5 slip would also have to be issued to the qualifying person where the interest generated by the amount in the EFA is paid or credited to the qualifying person instead of accumulating in the EFA (technical interpretations 9532895 and 9705585, dated May 31, 1996, and June 12, 1998, respectively). Paragraph 20 of IT-531 indicates which amounts are to be included in the qualifying person's business income.

We trust our comments will be of assistance.

Theresa Murphy
Section Manager
for Division Director
International and Trusts Division
Income Tax Rulings Directorate
Policy and Legislation Branch