8 April 2003 Income Tax Severed Letter 2003-018118A50 - Maximum relevant contribution to an EFA

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 CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

Principal Issues: Do total relevant contributions under an eligible funeral arrangement include deductions for selling expenses kept by the funeral home?

Position: Yes.

Reasons: Wording of the Act.

XXXXXXXXXX 	2003-018118
		Yves Moreno
April 8, 2003

Dear XXXXXXXXXX:

Re: Maximum Relevant Contribution to an Eligible Funeral Arrangement ("EFA")

This is in reply to your letter dated January 2, 2003, wherein you ask whether the contribution limit under paragraph (b) of the definition of EFA provided by subsection 148.1(1) of the Income Tax Act (the "Act"), refers to the amount paid by the consumer or the amount held in trust by the operator or funeral provider (a "Qualifying Person").

Your letter refers to British Columbia's Cemetery and Funeral Services Act, RSBC, c. 45 (the "Cemetery Act"), which provides that a Qualifying Person is required to deposit money received under an EFA, subject to a deduction of not more than 20% of the amount received. You provide an example involving an EFA which only covers funeral services where an individual pays $17,000 to a Qualifying Person and the later transfers $13,600 (80% of the initial payment) to a trust.

Section 105 of the Cemetery Act reads as follows:

105 (1) Within 21 days after receiving money under a [pre-need cemetery services plan or a pre-arranged funeral services plan], an operator or funeral provider must deposit that money, subject to a deduction for selling expenses of not more than 20% of the amount received, into a trust account established by the operator or funeral provider with a savings institution in British Columbia and invested and accounted for as trust funds in accordance with this Act.

(2) Money held in trust by the savings institution must be administered as prescribed in accordance with a written trust agreement between the savings institution and the operator or funeral provider, and the trust agreement must be filed with the registrar.

The amount that is retained by the Qualified Person must be included in its business income (par. 20 of IT-531, "Eligible Funeral Arrangements"). In your example, the full amount of $17,000 is a "relevant contribution" according to subsection 148.1(1) of the Act as it was paid "for the purpose of funding funeral or cemetery services with respect to the individual". That is confirmed by section 106 of the Cemetery Act which provides that "if an operator or funeral provider fails to deliver the services contracted for under a plan when those services are required, the full amount of funds paid for the unused plan, including interest on the full amount paid, must be refunded without deduction to the personal representative of the deceased for whom the plan was purchased". Accordingly, the plan in your example would not qualify as an EFA for the purposes of section 148.1 of the Act because the relevant contributions would be in excess of $15,000.

This opinion is provided in accordance with the comments in paragraph 22 of Information Circular 70-6R5.

We trust our comments will be of assistance.

Theresa Murphy
Section Manager
for Division Director
International and Trusts Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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