Tax rules are often complicated and never fun. In the case of pre-arrangements that is no different. When you pre-arrange your funeral there are some things to consider from a tax perspective that we hope to cover here. We will do our best, but unfortunately, we are not accountants and can’t give you personal advice so you may have to discuss further with your accountant.
Can I claim my pre-paid funeral as a deduction on my income tax?
No. You are just making an investment that is similar to any other investment you might purchase. This investment is unique in its ability to protect you from future funeral cost inflation, but that does not make it tax deductable.
Why did I receive a T5?
A T5 is used to report any investment income on a tax return. Pre-paid funeral funds earn interest to cover the cost of inflation but sometimes they do better than that. If the pre-arrangement funds are more than the current day price you will get a refund from the funeral home. If this refund is more than $50 the funeral home will calculate how much interest was earned and issue the T5 only if both the refund and interest earned are more than $50. If you receive a large refund because you have downgraded your services, you will only receive a T5 for the interest amount.
If a pre-arrangement is cancelled then a T5 will be issued if there is more than $50 of interest earned. This is the same as any other investment.
Who is issued the T5 issued to?
The T5 is issued to the estate of the deceased for the year that the passing occurred. Meaning, the Executor will receive a T5 (in the estate of the decedent’s name).
How can I avoid receiving a T5?
If you are receiving a refund from the funeral home, in excess of $50, you can put those funds towards more products and services at the funeral home. This may include aftercare, urns and jewelry, upgrading your casket, etc. You should only do this if the funeral home can offer you services that you value and you can use that to avoid the taxes you will have to pay from a T5
We welcome you to reach out to our knowledgeable team of Funeral Pre-Planners to learn more.