Subsection 148.1(1) - Definitions
Eligible Funeral Arrangement
A care and maintenance fund established pursuant to s. 35 of the Cemeteries Act (Ontario) will qualify as a trust governed by an eligible funeral arrangement if the contribution limit is not exceeded.
Subsection 148.1(2) - Exemption for eligible funeral arrangements
9 February 2015 External T.I. 2013-0480881E5 F - Disposition of Eligible Funeral Arrangement Contracts
A corporation which is a "qualifying person," and which in the course of carrying on a funeral home business had concluded prepaid funeral service contracts which qualified as eligible funeral arrangements ("EFAs"), disposed of all the assets of its business including the EFA contracts. The purchase price was based on the future profit potential of servicing the contracts. Would the sales proceeds be exempt from tax by virtue of s. 148.1(2)(b)(ii)? CRA stated (TaxInterpretations translation):
[A] qualifying person does not have an interest in an EFA or an interest in a trust governed by an EFA for purposes of subparagraph 148.1(2)(b)(ii) except insofar as it has the right to receive amounts under the EFA. Furthermore, the qualifying person disposes of its interest (or a portion thereof) to the extent that it withdraws amounts to which it is entitled in accordance with the applicable legislation.
It follows in our view that amounts paid to a qualifying person by a purchaser of EFA contracts because of the potential for future profits that could be derived from those contracts for future services to be rendered would not be paid in consideration for the disposition, by the qualifying person, of its interest in an EFA or an interest in a trust governed by an EFA. Consequently, subparagraph 148.1(2)(b)(ii) could not apply respecting such amounts.
…[T]he rights of a qualifying person in EFA contracts could constitute an eligible capital property whose disposition would give rise to income which would be included in business income by virtue of subsection 14(1).
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|Tax Topics - Income Tax Act - Section 14 - Subsection 14(5) - Cumulative Eligible Capital||proceeds on disposition of funeral home business||49|
Subsection 148.1(3) - Income inclusion on return of funds
Where excess funds in an EFA for an individual are transferred directly to an EFA for another individual, it would appear that such transfer does not result in an s. 148.1(3) income inclusion, although this may not be the correct result from a policy perspective, and Finance has been contacted.
A transfer of funds from one custodian to a second custodian pursuant to an authorization quoted in the technical interpretation did not give rise to an income inclusion under s. 148.1(3).