I have a client who passed away who received a T5 for income on a prepaid funeral arrangement.
The letter received from the planning administrator advised that I have to include it on the Final Return.
IT-531 say that the income is included in the estate’s income Par 15 – example 2. If the estate receives the payment, shouldn’t it be included in the estate’s return?
Any thoughts on this. References?
I used to be a CFO at a funeral home. The client should only be getting a T5 if:
The final home gave them the interest earned on the plan
If the executor/executrix made changes to the plan that made the actual cost of the At nerd funeral less then the preneed contract (the prepaid funeral)
The executor cancelled the prepaid fund and made the arrangement from scratch- this happens quite often when family decides that they want the deceased to be cremated but they prepaid a burial.
In any scenario - the additional funds are SUPPOSED to be made out to “the estate of” in which case the T5 is reported as the estates income however, often times the executor argues that the extra funds should be made out to them
(because they have closed the estate account, or a variety of other reasons) in which case depending on the funeral home, they will advise that the T5 will also be made out in their name and will be reported on their tax return.
Hope that helps?? Basically you just need to know who the cheque for the additional funds was made out to.
If I find my old material I’ll site references as well. I know I took a Walter Kluwers course on Taxes and the deceased client years ago which covered this.
I understand that it should be made out to “the estate of”. But my issue is not to whom the T5 is made out. I would like to know if it needs to go on the Final T1 return or on the T3 return for the estate.
For example, if RRSPs are paid out to a beneficiary, it uses their name, but it still has to be reported on the Final T1.
IT-531 says that the amount must be included in the estate’s income. That income goes on T3 trust return. But the letter I received says it needs go on the Final T1 return. It makes sense to me that it goes on the Final T1 because it was interest accrued during the lifetime of the deceased.
Am I reading IT-531 wrong?
IT-531 goes on to state the T5 should be reported in either the Estate’s Income but more often assuming the income was received by the executor of executrix, the T5 is reported in their income. Unless, the recipient was a spouse in
which case if attribution applies then the income could be reported in the contributors (deceased’s)
“An Income Inclusion Occurs When Funds Are Distributed From an EFA
¶ 15. If an amount is distributed from an EFA otherwise than as payment for the provision of funeral or cemetery services for an individual – a distribution would typically occur because the arrangement is cancelled or
because not all the funds held under the arrangement are needed to pay for the funeral or cemetery services – the person who receives the amount (referred to in this paragraph as the “recipient”) is generally required by subsection 148.1(3) to include an
amount in income. For subsection 148.1(3) to apply, the amount must be paid from the balance held under the arrangement for an individual (referred to in this paragraph simply as the “individual”)
“Paragraph 201(1)(f) of the Income Tax Regulations (which took effect for payments made after 1995) requires that an information return be made in prescribed form – i.e., a T5 Summary and the related T5 slips (or on magnetic
media) – by a person (e.g., a custodian) paying an amount that must be included in the income of the recipient under subsection 148.1(3). By virtue of subsection 205(1) of the Regulations, this information return must be filed (without notice or demand) on
or before the last day of February of the year following the calendar year for which the amount is paid. See the T5 Guide – Return of Investment Income for more information on T5 reporting requirements for EFAs.
An amount included in income under subsection 148.1(3) is categorized as income from property.”
Hopefully that helps!
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