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.
24(1) 0-921335
May 1, 1992
Dear Sirs:
Re: Interest Earned on Prepaid Funeral Services
We are writing to advise that the above-mentioned matter has been the subject of a review by this Department which will result in a revision of Interpretation Bulletin IT-246 to reflect the Department's interpretation of the current law.
As you know, the Department's administrative practice has been to permit the reporting by the individual of all interest accumulated on these trust funds either at the time of withdrawal upon cancellation of the contract, or at the time the monies were applied against the cost of the services provided by the funeral home.
This administrative practice was developed at a time when most of the provinces did not have specific legislation in place concerning these arrangements. Since then, legislation has been implemented by most of the provinces with the result that in most arrangements the prepaid amounts are held in trust on behalf of the individual contributor until they are applied or the arrangement is cancelled. Interest on these trust funds is the property of the contributor.
The Department's interpretation of the current law is that contributors to prepaid funeral services are required to report the interest on an annual basis in accordance with subsection 75(2) of the Income Tax Act. The trustee is therefore required to file annual trust income tax returns and issue information slips to the contributors.
The funeral director will continue to be required to include in income the total amount retained either at the time the contract is cancelled or at the time the services are performed. This does not in any way, reduce the amount of interest income required to be reported by the client.
Interpretation Bulletin IT-246 will be expanded to include the tax implications to both the individual and the funeral directors.
We propose to implement this new reporting requirement for 1992. However, should there exist any unusual arrangements which differ from those outlined above that might be usefully addressed on the revised Bulletin, please write to:
Mr. Ray Thompson
Chief
Merchandising, Manufacturing,
Partnerships and Trust Section
Rulings Directorate
Revenue Canada, Taxation
Room 303 88 Metcalfe Street
Ottawa, Ontario
K1A 0L8
Alternatively, Mr. Thompson can be contacted at (613) 957-8955.
Yours truly,
Director General Rulings Directorate Legislative & Intergovernmental Affairs Branch
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