5 July 1994 External T.I. 9408545 - PRE-PAID FUNERAL PLANS

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:

Pre-paid funeral plans - general comments

Position TAKEN:

The Department will continue the administrative practice set out in IT-246 until the legislation becomes law.

Reasons FOR POSITION TAKEN:

Our file E9406788 - Letter from DM's office on the topic.

XXXXXXXXXX		5-940854

Attention: XXXXXXXXXX

July 5, 1994

Dear Sirs:

Re: Pre-paid Funeral Plans

This is in reply to your letter dated April 6, 1994 wherein you requested an interpretation regarding the income tax treatment of pre-paid funeral plans. We apologize for the delay in responding to your request.

As explained in Information Circular 70-6R2, it is not the Department's practice to comment on proposed transactions other than in the form of advance income tax rulings. Taxpayers seriously contemplating proposed transactions are best advised to seek a formal ruling, submitting a complete statement of facts and issues as well as copies of all relevant documents. Should your situation involve completed transactions, you should submit all relevant facts and documentation to the appropriate taxation district office for their views. We are therefore not in a position to give you a definite response as to the application of the provisions of the Act. However, we can offer you the following general comments which may be of assistance although, in certain circumstances, they may not be appropriate to your specific situation.

We were informed that the Department of Finance is considering an amendment to the Income Tax Act (the "Act") which will legislate the administrative practice set out in the Interpretation Bulletin IT-246. Until the legislation becomes law, we will continue the administrative practice set out in IT-246. As such, we confirm your understanding of the administrative practice as follows:

a)Monies received under an agreement to provide funeral services in the future, which are placed in trust and which cannot be withdrawn until the agreed services are rendered, are not considered to be received by the funeral director for purposes of paragraph 12(1)(a) of the Act and are, accordingly, not income in the year of receipt.

b)The monies placed in trust are considered to be received by the funeral director in the year the services are rendered.

c)Interest on such monies that is required, either by the governing provincial law or by the agreement of the parties, to be held in trust until the services are rendered, is considered receivable, for the purpose of paragraph 12(1)(c) of the Act, in the year the services are rendered, rather than in the year the interest accrues.

d)When the plan is cancelled and the monies are returned to the contributor, the accumulated interest is to be reported by the contributor in the cancellation year.

Interpretation Bulletin IT-246 does not apply to situations using life insurance as a funding vehicle for pre-paid funeral as described in your letter. Therefore, we are of the opinion that the administrative policy stated in IT-246 is not extendible to such financing plan. However, our position might differ when the legislation on pre-paid funeral plans will be known.

Unless as otherwise stated all references to statute are to the Income Tax Act (S.C. 1970-71-72,c.63 as amended) consolidated to June 10, 1993.

The above comments are an expression of opinion only and, as explained in paragraph 21 of Information Circular 70-6R2, are not binding on the Department.

We trust that these comments will be of assistance to you.

Yours truly,

for Acting Director
Manufacturing Industries,
Partnerships and Trusts Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch