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 Department.
Prenez note que ce document, bien qu'exact au moment ‚mis, peut ne pas repr‚senter la
Position actuelle du ministŠre.
Principal Issues:
Income tax reporting when payments are made to the qualifying person out of an EFA
Position:
T5 slips may be required to be issued pursuant to paragraph 201(1)(b) of the Regulations.
No T5 slips when a CCT is involved.
Reasons:
a qualifying person is viewed as a beneficiary under a CCT. In other circumstances,
201(1)(b) applies whether or not in the context of an EFA.
970558
XXXXXXXXXX M. Lemire
957-4363
Attention: XXXXXXXXXX
June 12, 1998
Dear XXXXXXXXXX:
Re: Cemetery care trusts and eligible funeral arrangements
We are writing in reply to your letter of February 26, 1997 in which you request technical interpretations with respect to various issues regarding eligible funeral arrangements. We apologize for the long delay in our response.
Part I - Cemetery Care Trusts
As noted in your letter, the definition cemetery services in subsection 148.1(1) of the Income Tax Act (the Act ) includes property and services funded out of a cemetery care trust . As also defined in this subsection, a cemetery care trust ( CCT ), as it applies for the 1993 and subsequent taxation years for the purposes of the Act, means a trust established pursuant to an act of a province for the care and maintenance of a cemetery. Any contributions made to the CCT as part of an arrangement for the purpose of funding cemetery services in respect of an individual must be counted as relevant contributions for the purpose of determining whether the arrangement is an eligible funeral arrangement ( EFA ) under subsection 148.1(1) of the Act. However, despite the fact that the arrangement may not qualify as an EFA (because of excess contributions made under the arrangement for example), it is our opinion that income earned on such portion of the contributions that is placed into the CCT would not be subject to income tax as a CCT is specifically exempt from Part I tax under proposed paragraph 149(1)(s.2) of the Act included in Bill C-28.
Part II - Income Tax Reporting - Eligible Funeral Arrangements
Provided that a funeral home has the legal entitlement to receive annual interest income earned under an EFA and a trust company is required to issue a T5 slip to the funeral home,
you first ask us to confirm that the T5 slip must include all interest income credited to the funeral home bank account during the year rather than the amount of interest actually paid to the funeral home.
Paragraph 201(1)(b) of the Income Tax Regulations (the ITR ) generally requires persons paying interest in respect of money on deposit with a corporation, association, organization
or institution to file information returns (i.e. T5 slips) whether or not these payments are made in the context of an EFA.
Where a funeral home has the legal entitlement to receive all interest income earned under the EFA for a year, it is our understanding that the amount of interest does not accumulate
under the EFA account and must be paid to the funeral home or credited to the funeral home bank account.
As indicated in your letter, where a funeral home has the legal entitlement to receive all interest income earned under an EFA, we are of the opinion that a trust company which has
contributions from the EFA on deposit for a funeral home is required by virtue of paragraph 201(1)(b) of the ITR to issue a T5 slip to that funeral home for payments of interest income
in the year. For the purpose of this paragraph, it is our view that the word payment includes all interest income which is credited to the funeral home bank account during the year and not only the amount of interest actually paid to the home.
You also ask us to confirm that in the case of a CCT, the trustee is not subject to any income tax reporting (T3 return or T5 slips).
Section 204 of the ITR generally requires a trustee of a trust to file a T3 return in respect of income, gains or profits of the trust. For the 1993 and subsequent taxation years, it is our
view that a trustee of a CCT is exempt from filing a T3 return. In this regard, we understand that amendments will be made to subsection 204(3) of the ITR to add a CCT to the list of trusts exempt from filing T3 returns once the proposed amendments to section 148.1 of the Act and related provisions included in Bill C-28 are passed into law.
As mentioned above, paragraph 201(1)(b) of the ITR generally requires persons paying interest in respect of money on deposit with a corporation, association, organization or institution to file T5 slips whether or not these payments are made in the context of an EFA.
Paragraph 201(1)(f) of the ITR also provides that any person who pays an amount that is required by subsection 148.1(3) of the Act to be included in computing `the income of a taxpayer for a taxation year is required to issue T5 slips. Subsection 148.1(3) of the Act provides for an income inclusion in the event that there is a return of funds from an EFA
normally because the arrangement is cancelled or because not all the funds held under the arrangement are needed to pay for the funeral or cemetery services.
It is our opinion that subsection 148.1(3) of the Act and paragraph 201(1)(f) of the ITR are not meant to apply to any payment made out of an EFA to cemetery owners or funeral
homes. Consequently, it is our view that a trust company, acting as trustee under a CCT, is not required by virtue of paragraph 201(1)(f) of the ITR to issue T5 slips with respect to any payment made to a cemetery owner.
Finally, you ask us to confirm that any payment to cemetery owners out of a pre-needs cemetery contract that is an EFA is not subject to any income tax reporting (T3 return or T5 slips).
Under the laws of the provincial jurisdictions, we understand that there are usually two types of funds maintained by cemetery owners. These funds are generally referred to as a CCT and a pre-needs cemetery contract (also known as a pre-need assurance fund or pre-need cemetery service and supplies contract in some provinces). A pre-needs cemetery contract is generally established by a cemetery owner who sells pre-need cemetery supplies or services. We also understand that the laws of the provincial jurisdictions require all money received for pre-need supplies or services to be either held in a trust with a trust company as the trustee or deposited in an account with a trust company or other authorized person (e.g. a financial institution). Such money received and any accumulated growth (generally interest) must be held for the benefit of the purchaser until the cemetery services are rendered or the contract is cancelled by the purchaser. The purchaser is generally the person who is entitled to such interest on the money paid under the arrangement. While you seem to indicate in your letter that a pre-needs cemetery contract may include a clause to the effect that all interest income earned on the money paid under the arrangement is property of the cemetery owner, our understanding is that this is not possible under provincial law.
As mentioned above, section 204 of the ITR generally requires a trustee of a trust to file a T3 return in respect of income, gains or profits of the trust. However, for the 1993 and
subsequent taxation years, a trustee of a trust that is governed by an EFA is exempt from filing a T3 return pursuant to paragraph 204(3)(d) of the ITR. Therefore, where a pre-needs
cemetery contract is a trust arrangement which qualifies as an EFA, it is our view that the trust company acting as trustee under the EFA is exempt from filing a T3 return.
It is also our opinion that the trust company acting as trustee under the EFA is not required by virtue of paragraph 201(1)(f) of the ITR to issue T5 slips with respect to any payment made out of a pre-needs cemetery contract to a cemetery owner.
This opinion is provided in accordance with the comments in paragraph 22 Information Circular 70-6R3. It is not an advance tax ruling and, accordingly, it is not binding on
Revenue Canada.
We trust our comments will be of assistance to you.
Yours truly,
Theresa Murphy
Chief
Trusts Section
Resources, Partnerships and
and Trusts Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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