So you’ve made your annual RRSP contributions, your life insurance is all paid up, your mortgage is all paid down, your kids are spending all the contributions you’ve made to their RESP’s and your banker pries an extra $5,000 annually from you to fund your tax-free savings account (TFSA). You figure you’ve got all the tax-deferred accounts you will ever need, don’t you? And you would be wrong.
Why not consider an eligible funeral arrangement (EFA)?
This little gem of a tax-deferred account has been around for years, yet it is often overlooked. Maybe it’s the subject matter. In any case, let’s forge ahead. An EFA is similar to a TFSA in that deposits into the account are not tax-deductible, but the investment earnings accumulate tax-free, and remain tax-free – as long as the funds are ultimately spent on eligible funeral costs.
Each individual resident in Canada is allowed to make a contribution of up to $35,000 into an EFA that covers funeral and cemetery services. Alternatively, you could have two separate plans – one for funeral services only (the limit is $15,000) and one for cemetery services only (the limit is $20,000). These are lifetime limits and can be contributed at any time and in any incremental amounts over your lifetime.
Care must be taken when investing these plans, because they are not administered by banks or trust companies. Rather, they are governed by commercial contracts entered into with licensed funeral service providers. So before you hand your money over to a Fisher & Sons, make sure they are licensed, trustworthy and stable enough to be around when the services are finally required.
Eligible funeral services must be rendered in Canada, so if you plan to retire and have your final resting place in Boca Raton, don’t bother. However, transportation of a body back to Canada for burial would be a qualifying expenditure. So are funeral notices, transportation of family and a reception after the funeral.
Any amounts that are not used for funeral services are normally returned to the estate. Such refunds will be taxable to the recipient to the extent of any untaxed earnings remaining in the plan.
Contributions to a plan can be made on behalf of yourself and anyone else. The dollar limits apply to each person, regardless of who makes the contribution. So, you could, for example, have a plan for yourself and you could also start one up for your mother-in-law as a lovely birthday gift! 🙂
So if you’re looking for another place to park your investments, benefit from tax-free compounding and throw yourself a great wake when you go, why not consider an eligible funeral arrangement?