MINISTER/DM'S OFFICE Y.S. 93-1392T ADM'S OFFICE CENTRAL RECORDS RETURN TO RULINGS, ROOM 303, MET. BLDG.
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Dear XXXXXXXXXX
The Honourable Otto Jelinek, Minister of National Revenue, has asked me to respond your letter of March 4, 1993, concerning the taxation of interest received on funds held in trust to provide funeral services.
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 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 interest must be taxed annually. The Department is working with representatives of the funeral service associations to revise our publications to reflect the best interpretation of the law and to establish reporting guidelines for the interest earned.
I agree that all interest rates take into account expected levels of inflation but the present provisions of the Income Tax Act do not permit an exemption for this reason. Such a proposal would require an amendment to the Income Tax Act.
I appreciate your interest in this matter and hope that this information will assist you in understanding the Department's position.
Yours sincerely,
Pierre Gravelle, Q.C.
March 29, 1993