Tax return guidelines for deceased taxpayers in Canada.
Allan Madan, CPA, CA
Filing tax returns for deceased in Canada
In life, it is said that the only two certain things are death and taxes. While both of these may be inevitable, tax penalties due to incorrect actions are not. Have you been named someone’s legal representative, but are unsure of what to do? Let Allan Madan Chartered Accountant be your guide in this difficult time. For a more introductory look at the final tax return, please visit our resource is an individual required to file a tax return in the year of their death?
When a person dies, their legal representative should file a statement on their behalf. If you are any of the following, you have been named the legal representative of a taxpayer who has passed away.
- You are named executer in the will.
- You are the individual appointed as the administrator of the estate.
- You are the individual deemed to be the liquidator of the estate (only applicable in Quebec).
How do I get started with filing a tax return for someone who is deceased? What are my obligations?
As the legal representative of the deceased person, you are required to make sure their financial affairs are in order. You must also inform the beneficiaries of any tax impacts received from trusts. To get started, make sure you report the tragic event as soon as possible. This can be done by sending a letter to the CRA, or calling 1-800-959-8281. You can also visit the CRA’s website for more information on what to do when someone has died. For more help in estate planning, please visit our resource How to get help in estate planning Canada?
Tax Returns for deceased in Canada – Preparing the return
When someone dies, the CRA deems them to have sold all their valuables and resources. It is as if they sold everything right before their passing. The final income tax return is both a record of everything the deceased person owned, as well as anything they owed. Because the CRA knows that death is a sensitive issue, they are somewhat lenient their filing deadline. The deadline is as follows:
- If the person died between January 1 and October 31, the date is April 30 of the following year.
- If the person died between November 1 and December 31 the date is six months after the person passes.
If you do not have a T4A (P) or T4A (OAS) slip, you can contact the Service Canada Centre if the deceased was 65 years of older to complete the final return. If you would like to learn more, there is also a document called the T4011 Preparing Returns for Deceased Persons. Next, let’s look at what you include when preparing it.
Capital and depreciable property
A capital gain arises as the result of selling a capital asset (such as real estate, stocks, or bonds). Because of how the CRA views death, the capital gain of a deceased person can potentially be quite large. As a legal representative, you calculate a capital gains by taking the difference between the proceeds and adjusted cost base. The adjusted cost base is the price paid for the property less any legal or commissions paid.
If the requirements are met, the deceased taxpayer may use the principal residence exemption to offset gains.
RRSP
Any RRSP’s held by the deceased are also included, listed at fair market value. If the plan was designated to a surviving spouse, this is not required. In this case, the RRSP is transferred to the surviving spouse with no tax consequences.
Medical expenses
Medical expenses may be claimed by the deceased for the 24 months preceding the date of death. Any funeral expenses incurred are considered personal expenses and are not deductible.
Donations
The usual rule regarding donations is that donations made in the year can be claimed up to a maximum of 75 per cent of income. In the year of death, the deduction is increased to 100 per cent.
Old Age Pension
Old Age Pension is reported in box 18 on the T4A (OAS). Payments received after the date of death may either be reported on the rights or things or the final return.
CPP or QPP benefits
Canada Pension Plan (CPP) or Quebec Pension Plan (QPP) benefits in box 18 are not reported. They may be reported either by deceased person’s estate or the beneficiary’s return.
Registered Retirement Income Fund (RRIF)
Let’s say the deceased taxpayer jointly elected to split pensions, annuity, RRIF or LIF payments with their spouse. In this case, these can be reported on line 115 of the surviving spouse/common law partner’s return. As offsetting deduction may be claimed on line 210.
Death benefits (other than CPP or QPP death benefits)
Death benefits shown on box 106 of the T4A slips or box 26 of the T2 slip are not reported. Rather, they are either reported on the estate or the beneficiary’s return.
What is the return for rights or things?
The legal representative may also file a form called the “Rights or Things” return. This includes salary, vacation pay, sick days, and commissions. These must be owed before but received after the date of death. The rights or things return may also include OAS and CPP income received after the date of death. Though optional, if this return is submitted all rights or things must be reported.
This return needs to be filed at the later of:
- One year following the date of death or;
- 90 days following the date the notice of assessment or reassessment is received for the final return.
For more information on the final income tax return, please visit the CRA’s website on the Final return.
Disclaimer
The information provided on this page is intended to provide general information. The information does not take into account your personal situation and is not intended to be used without consultation from accounting and financial professionals. Allan Madan and Madan Chartered Accountant will not be held liable for any problems that arise from the usage of the information provided on this page.
ABOUT THE AUTHOR
ALLAN MADAN
CPA, CA
Allan Madan is a CPA, CA and the founder of Madan Chartered Accountant Professional Corporation. Allan provides valuable tax planning, accounting and income tax preparation services in the Greater Toronto Area.
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