Filing a tax return can be overwhelming in the best of times, never mind the worst. When a family member dies, the tax implications may be the last thing on your mind, but if you’re the legal representative it is your responsibility to bring closure to their accounts or ‘estate’. This means filing their final income tax return, ensuring any debt is paid off, and completing the required government paperwork – all while protecting yourself from liability.
Here are six things to keep in mind when fulfilling this essential, often time-consuming obligation.
- Filing a final return for a loved one comes with many responsibilities and liabilities. Familiarise yourself in advance so you know what you are getting into.
- There are 3 types of deceased returns, make sure you are filing accordingly.
- File the final return and get a clearance certificate before distributing your deceased loved one’s assets.
1. Notify the government ASAP.
One of the first things you should do as a legal representative is notify the CRA and Service Canada of your loved one’s passing. Before the CRA (or Revenu Quebec) can help with your requests or questions, you’ll need to provide the deceased’s Social Insurance Number as well as a copy of both the death certificate and the document proving you are the legal representative.
2. File the final return on time.
The final return will tell you whether the deceased owes any income tax. That’s why it’s important to file it BEFORE distributing any assets to beneficiaries.
If the death occurred between January 1st and October 31st, you have until April 30th of the following year to file the final return. If it was between November 1st and December 31st, it’s due six months after the date of death.
3. You may need to file more than one type of return.
While filing a final return is a must, you may also need to file optional returns and/or a trust return. Although a source of additional paperwork, these returns may reduce or eliminate the deceased’s tax payable by allowing you to claim certain amounts more than once, split amounts between returns, or claim amounts against certain kinds of income.
Final return, optional return and the trust return are each due at different times. So remember to file on time to settle your affairs with the CRA.
4. Get a clearance certificate BEFORE dispersing your loved one’s wealth.
As legal representative or ‘guardian’ of the estate, you can be held personally liable for taxes owed by the deceased. Once you’ve filed the final return, you need the Notice Of Assessment to apply for a clearance certificate from the CRA (or, if applicable, Revenu Quebec).
Confirming all taxes have been paid, the clearance certificate protects you from personal liability and clears the way for distributing the remaining assets. The last thing you want is to find out your loved one owed penalties or back taxes and having to approach family members about paying the money back – especially if they have already spent it!
5. Prepare for paperwork.
Besides making sure tax returns from previous years have been filed, preparing the final return will involve tracking the deceased’s income from all sources from January 1st of the year of death up to the date of death. To do this, you’ll have to contact employers, banks, trust companies, stockbrokers, and pension plan managers to gather information and documentation to help calculate income and deductions. Here’s a list of common items you have to report on a final return.
6. Mail the final return to the CRA.
A final return cannot be submitted via NETFILE, but it can be E-Filed. It can be filed electronically, and you only need to file via paper if the electronic filing is denied by the CRA.
When a loved one has passed, all the paperwork and legal jargon that comes with the job of legal representative can be daunting. If you are feeling a little overwhelmed or confused, consider TurboTax Live Full Service, where one of our tax experts can prepare your Final Return(s) from start to finish.
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