22 April 1994 Ministerial Letter 9406788 - PREPAID FUNERAL SERVICES

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.

MINISTER/DM'S OFFICE Y.S. 94-02301M
ADM'S OFFICE
CENTRAL RECORDS

RETURN TO RULINGS, ROOM 303, MET. BLDG.

AUTHOR
SUBJECT OF CORPORATE CASE FILE
April 22, 1994

XXXXXXXXXX

Dear XXXXXXXXXX:

I am replying to your letter of March 7, 1994, written on behalf of your constituent, XXXXXXXXXX concerning the taxation of interest received on funeral services funds held in trust.

The Department's administrative practice had been to permit the reporting of all interest accumulated on prepaid funeral arrangements either by the contributor at the time of withdrawal upon cancellation of the contract, or by the funeral director at the time the monies were applied against the cost of the services provided by the funeral home.

This administrative practice, which was set out in Interpretation Bulletin IT-246 (IT-246), was developed before 1976 when few provinces had specific legislation in place concerning these arrangements. Since then, legislation has been implemented by most of the provinces whereby the funds are held in trust on behalf of the individual contributor until they are applied to pay funeral expenses or the arrangement is cancelled.

The Department's interpretation of the income tax law as it applies to the present provincial regimes is that contributors are required to report the interest earned annually. On May 1, 1992, we advised funeral service associations across the country of our position and indicated that IT-246 would be revised accordingly for 1992.

In subsequent meetings with representatives of The Funeral Service Association of Canada, the Department agreed to delay until 1993 the implementation of the changes set out in our letter of May 1, 1992. This delay was to allow time to solve the administrative difficulties faced by trustees in implementing a reporting system.

Subsequently, the Department was informed that the Department of Finance is considering an amendment to the law which will legislate the administrative practice set out in IT-246. It is intended that this legislation be effective for the 1993 taxation year.

In view of this proposed amendment, the Department will continue the administrative practice set out in IT-246 until the legislation becomes law. Consequently, XXXXXXXXXX will not be required to pay tax on the annual earnings on the funds held in trust.

I appreciate your interest in this matter and hope that I have addressed your concerns.

Yours sincerely,

David Anderson, P.C., M.P.

Cal Brown
957-2131
940678
April 7, 1994