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 émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues: Whether a parent having funds in an EFA for his or her benefit can transfer excess funds from it to another EFA with a related person as beneficiary without any tax consequences?
Position: No 148.1(3) income inclusion. However, the amount of the excess funds will not be treated as a relevant contribution in respect of the other EFA.
Reasons: No 148.1(3) income inclusion as the direct transfer does not constitute a "distribution" under this subsection. The excess funds would not constitute a relevant contribution in subsection 148.1(1) in respect of the second EFA. This would make sure that 148.1(3) will apply on a subsequent distribution of these funds out of the second EFA to the beneficiary.
XXXXXXXXXX M. Lemire
5-980834
Attention: XXXXXXXXXX
March 9, 1999
Dear Sirs:
Re: Direct Transfer of Funds From an Eligible Funeral Arrangement (“EFA”)
for an Individual to Another EFA for Another Individual
This is in reply to your letter of April 1, 1998 in which you requested our technical interpretation concerning the tax implications of a transfer of funds from an EFA for an individual to another EFA for another individual. We apologize for the delay in responding to your letter.
We are unable to provide you with any specific comments other than by way of an advance tax ruling. The procedure for requesting an advance tax ruling is laid out in Information circular 70-6R3 dated December 30, 1996. Nevertheless, we are prepared to provide some general comments.
Facts
An individual wishes the excess funds of his or her EFA account (after the provision of funeral or cemetery services upon his or her death) to be transferred to another EFA with the individual’s daughter or niece being the beneficiary.
Generally, subsection 148.1(3) of the Income Tax Act (the “Act”) provides for an income inclusion in the event that there is return of funds from an EFA. Subsection 148.1(3) of the Act will generally apply if an amount is distributed (otherwise than as payment for the provision of funeral or cemetery services with respect to an individual) to a taxpayer from an EFA and the distributed amount is paid from the balance in respect of the individual. However, the subsection 148.1(3) income inclusion does not apply to the extent that the return of funds is a refund of contributions which qualify as “relevant contributions” under subsection 148.1(1) of the Act in respect of the individual under the EFA.
A “relevant contribution” under subsection 148.1(1) of the Act for an individual under an EFA can either be a contribution made directly to the EFA or a contribution made to it by means of a transfer, from another EFA, of an amount that was contributed directly to that other EFA.
Paragraph 17 of Interpretation Bulletin IT-531 dated January 29, 1999 describes the exception to the general rule described above in circumstances where funds in an EFA for an individual are transferred directly to another EFA for the same individual. More particularly, if an amount (accumulated growth) held in an EFA for an individual is transferred directly from the EFA as a contribution to another EFA for the individual, the Department’s position is that such transfer does not result in a subsection 148.1(3) income inclusion in respect of the distribution out of the EFA and the amount so transferred to the other EFA is not treated as a “relevant contribution” under subsection 148.1(1) of the Act for the individual under the other EFA.
In the scenarios described in your letter, it is our view that the departmental position set out in paragraph 17 of IT-531 described above may also apply in connection with such direct transfer of excess funds from an EFA for an individual to another EFA for another individual.
However, we are uncertain as to whether such a beneficial treatment in the scenarios described in your letter would be consistent with the object and spirit of section 148.1 of the Act. As we doubt that, from a policy perspective, the beneficial treatment set out in paragraph 17 of IT-531 should apply in connection with a direct transfer from an EFA of an individual to another EFA of another individual, we have referred the matter to the Department of Finance for their consideration. We understand from the Department of Finance that the situations described in your letter had not been contemplated when section 148.1 of the Act was enacted and that further consideration will be given to this policy issue which may result in future technical amendments.
Our comments are provided in accordance with paragraph 22 of Information Circular 70-6R3 dated December 30, 1996.
We trust our comments will be of assistance to you.
Yours truly,
Theresa Murphy
Manager
Trusts Section
Resources, Partnerships and Trusts Division
Income Tax Rulings and Interpretations Directorate
Policy and Legislation Branch
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