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Can Prepaid Funeral Payments be Deducted on Tax Returns?

licensed Pre funeral planner MississaugaOne of the questions that I am asked is whether or not prepaid funeral payments can be deducted on Personal Tax Returns. The answer unfortunately is no and here’s why.
The Canada Revenue Agency (CRA) has designated that funds held in a prepaid funeral account called an Eligible Funeral Arrangement (EFA) must be guaranteed to $100,000.00 and earns tax exempt interest. The funds held in the EFA continue to earn tax exempt interest throughout the life of the funeral beneficiary.

When the funeral beneficiary dies, the funds are released to the selected funeral home. These funds are used to pay for the desired type of funeral service. If there are residual funds in the EFA, a T5 may be issued to the estate of the deceased.

CRA Tax Bulletin IT-531 states that is the residual funds in the EFA is less than $50.00 as T5 does not have to be issued. Conversely, if the residual funds in the EFA are greater than $50.00 than a T5 must be issued to the estate of the deceased. For example, if the initial deposit in the EFA is $10,000.00 and when the funeral beneficiary dies, there is $12,000.00 in the EFA, and the funeral provided at the time is $11,955.00 then a T5 would not be issued to the estate of the deceased ($12,000.00 – $11,955.00 = $45.00). If the funeral provided was $11,000.00 then a T5 would be issued to the estate of the deceased ($12,000.00 –$11,000.00 = $1,000.00).

The T5 refund to the estate is included in the earning of the deceased from the January 1 to the date of death. When the income tax return is prepared the T5 amount may be taxed as income, depending on the amount of money that is declared as annual earnings for the deceased in the year that they died.

I hope you find this information helpful. If you have any questions regarding this or how to set up a pre-paid funeral plan, I am here to help. You can connect with me via email or telephone, leave a comment right here on the site or click the contact tab at the bottom of the screen if you are reading this post on the website.

Until next time,

Kat
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