29 September 1993 External T.I. 9314875 F - Care and Maintenance Fund - Capital Gains

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.

XXXXXXXXXX

Attention:  XXXXXXXXXX

Dear Sirs:

RE:  Cemetery Trusts/Capital Gains

We are writing in response to your letter of February 12, 1993, forwarded to us from the Kingston District Office, wherein you requested our comments on the taxation of capital gains arising in a Perpetual Care Fund which is not a registered charity as defined in the Income Tax Act (the "Act"). We apologize for the delay in responding to your letter.

While we are unable to provide any comments in respect of the specific cemetery trust agreement submitted with your letter, we can provide the following general comments about the taxation of capital gains in Care and Maintenance Funds (formerly cemetery Perpetual Care Funds) provided for under section 35 of the Cemeteries Act (Revised) (Ontario) R.S.O. 1990, C.-4 (the "Cemeteries Act") which came into force on April 1, 1992.

Cemeteries Act

The Cemeteries Act requires cemetery owners who sell interment rights to set up trust funds with a trust company which will act as trustee and invest and manage the funds that the cemetery owners receive for the care and maintenance of the lots, buildings, roads, grounds, mausoleum, etc. of the cemetery. Such trusts are referred to as Care and Maintenance Funds. A purchaser of interment rights does not have the right to cancel the contract.

Section 35 of the Cemeteries Act requires that: 1) a trustee of a fund shall pay the income from the fund to the owner of the cemetery involved and 2) no trustee of a fund shall pay out any of the capital portion of the fund. The word "income" is defined to mean "the interest or money earned, including compounding thereof, by the investment of funds." There is no definition of capital.

Our Comments:

If the terms of a trust indenture or a statutory act governing the trust do not provide that capital gains are to be considered income for the purposes of the trust, then capital gains arising in the trust are considered to be capital of the trust under trust law. Since the Cemeteries Act is silent on the treatment of capital gains, it is our opinion that any capital gains arising on the disposition of the trust's property will be treated as part of the capital of the trust for trust purposes. As the Cemeteries Act prevents the payment of any capital portion of a Care and Maintenance Fund to the cemetery owner, no part of any capital gains earned by such a trust in a year would be considered "paid or payable" to the cemetery owner for the purposes of paragraph 104(6)(b) and subsection 104(24) of the Act. Therefore, all capital gains arising in a Care and Maintenance Fund established in accordance with section 35 of the Cemeteries Act must be included in the income of that trust for income tax purposes.

As an exemption from income tax for Care and Maintenance Funds that are not registered charities would require an amendment to the existing income tax legislation, we have brought this matter to the attention of the Department of Finance for their consideration.

These comments represent our opinion of the law as it applies generally and are provided in accordance with the guidelines set out in Information Circular 70-6R2 dated September 28, 1990.

We trust that our comments will be of assistance.

Yours truly,

for Director Manufacturing Industries, Partnerships and Trusts DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch

c.c.      Mr. Henry Peel Public Affairs Kingston D.O.