The death of a loved one is usually a very difficult time to handle. To make matters worse you have to consider all the tax and legal work involved for deceased taxes. At Birdi CPA, we understand this emotional time and have provided you a quick start guide on what needs to be done to file deceased tax returns in Canada.
Collect all the Legal Paper Work
The basic documents you should locate are:
- The latest Will agreement of the deceased
- The official death certificate
- Certificate of Issuance for the Estate of the Deceased
- List of all assets the deceased owned
- Tax-slips and documents
The Will agreement will detail who the executor of the estate is and trustee(s); this person(s) has full legal representation on behalf of the deceased for tax purposes. The CRA prefers to speak with the executor of estate first before authorizing anyone else on the account. Electronic authorization is not be accepted by the CRA for deceased tax payers.
A death certificate will be issued with the official date of decease that will be reported on the final T1 income tax return and it marks the formation date of the estate of the deceased.
The list of assets is important because it determines the tax consequences of each asset and helps you plan accordingly on how to distribute funds from the estate to the beneficiaries.
You should also determine all sources of income the deceased was earning for the deceased taxes such as Canada Pension Plan, Old Age Security, RRSPs and RRIFs etc. Any tax-slips issued will be received in the mail or you can also obtain them by contacting the CRA.
These details should all be forwarded to your tax accountant to ensure proper filing of the final tax return.
Understand the Deceased Tax returns that need to be filed
For deceased tax payers in Canada, there are three important returns:
- Final T1 Personal income and Benefit Tax return
- T3 Trust Income tax return for the Estate
- Values, Right and Things (optional)
- Sole-Proprietor and Partner Return (optional)
The final deceased T1 tax return and the T3 trust return for the estate is mandatory. The other remaining returns are optional and may not be needed.
Any income earned after date of the decease is generally reported on the T3 trust return and not the T1 final tax return, your tax accountant will help you distinguish these factors.
Know the Due Dates for the returns
For the final return, the CRA advises if the death occurred between January 1 and October 31, the due date will be the standard T1 deadline of April 30. If the individual deceased between November 1 and December 31, the due date will be six months after the date of death.
If you file late, the CRA will levy a 5% penalty on any balance owing plus 1% of the balance owing for each month the return is late, up to a maximum of 12 months.
The T3 Trust return due date is determined based on the selected year end.
In certain circumstances the penalty and interest can be wavered with proper supporting documentation.
Remember to File the Clearance Certificate
It is very important the executor of the estate files the clearance certificate before any distribution is made from the estate trust to the beneficiaries as per the will agreement. This ensures all taxes that were owed were paid and helps protect the executor from being personally liable.
These steps will help you prepare to meet your tax accountant and legal counsel to ensure the deceased tax returns for your loved one are handled correctly.
The information provided on this page is intended to provide general information. You should consult with a tax professional to fully determine the scope of your situation. Gurrai Birdi and Birdi Chartered Professional Accountant shall not be held liable from usage of the information provided on this page.
Author: Gurrai Birdi, CPA, CGA, MBA
Gurrai Birdi is a Chartered Professional Accountant (CPA, CGA, MBA) who has years of extensive experience in public practice working with highly satisfied individual and business clients to ensure there taxes are minimized and accounting needs are fulfilled.