The taxation year of the deceased ends on the Date Of Death (DOD). It is the legal representative’s responsibility to gather information on the deceased’s estate and report the income on the appropriate return. The estate includes everything the deceased owned such as investments, buildings, bank accounts, etc.
The Final Return
The legal representative reports the income earned by the deceased up to the DOD on the Final Return. The final return is the same as the T1 general return and instead of the province of residence on Dec 31st, it will be the province of residence on the DOD.
Final Return Due Date
If the death occurred between Jan 1st to Oct 31st, the due date is April 30th of the following year. If the death occurred between Nov 1st to Dec 31st, the due date is 6 months after the DOD.
If the deceased or the deceased’s spouse or common-law partner was self-employed in 2021, and the death occurred between Jan 1st to Dec 15th – June 15th of the following year. If the death occurred between Dec 16th to Dec 31st – 6 months after the date of death.
Income Reported on The Final Return
Income from all sources earned from Jan 1st up to and including the DOD must be reported on the final return. Periodic income such as rent or bank interest is calculated on equal daily amounts (divide the income by the number of days in the year) and report it based on when it was received.
Mandy died on May 15th. She received $20,000 from her employer that covers the salary until May 30th. Since the DOD is May 15th, the income is divided as follows (Assume 365 days in the year):
- There is 135 days from Jan 1st to May 15th: $20,000 x 135/365 = $18,493.15 to be reported on the final return
- The remainder $20,000 – $18,493.15 = $1,506.85 to be reported by the beneficiary or the estate.
Income reported on the final return includes:
- Employment income and casual jobs earned up to the DOD.
- OAS and CPP/QPP benefits received prior and up to the DOD. Any income received after the DOD is to be reported on the Right or Things Return (optional return). Keep in mind the CPP or the QPP death benefit is never reported on the final return; instead, report it on the T3 estate return.
- Other pensions or superannuation received prior and up to the DOD such as Box 16 of the T4A slips, Box 31 of the T3 slips, RRIF income.
- Elected split pension amount if the deceased is the receiving spouse. Form T1032 Joint Election to split pension income must be attached to the final return. If the deceased is the pensioner, up to 50% of the full eligible pension can be transferred. If the deceased is the transferee, up to 50% of the eligible pension up to and including the month of death can be transferred. For example; Joshua’s eligible pension is $30,000 and his wife died Nov 10th. The wife was alive for 11 months so he can transfer: $30,000 x 11/12 x 50% = $13,750.
- Employment insurance benefit (EI) received prior and up to the DOD including maternity benefits.
- The RDSP must be closed no later than December 31 of the year, following the year of the beneficiary’s death. The taxable portion of the disability assistance payment (DAP) must be included in the income of the beneficiary’s estate in the year the payment is made. Any funds remaining in the RDSP, after any required repayment of government bonds and grants, will be paid to the estate.
- Dividends received before the DOD must be reported on the final return. Dividends declared before the DOD but received after should be reported on the rights or things return. Dividends declared and received after the DOD should be reported on the estate return.
- Interests are considered to be accumulated daily regardless of when they were paid. The income is divided by the days of the interest term. The income received from the beginning of the term, up to and including the DOD, should be reported on the final return. The remaining will be reported on the estate return or by the beneficiary.
- Capital gains from the disposition of a property prior to the DOD, should be reported on the final return. All capital properties are deemed to be disposed of immediately prior to death.
- Income from a matured RRSP that pays annuity should be reported for the period up to and including the DOD. After the DOD, the remaining fund will be transferred to the beneficiary.
- The FMV of an unmatured RRSP is considered to be received by the deceased immediately before the DOD.
- HBP and LLP yearly payments end immediately prior to the DOD. Either the legal representative reports the remaining payments as income on the final return or the legal representative with the spouse/ common-law partner can elect to take over the payments.
- If the deceased received payments from an RRIF account for the period from Jan 1st to the date of death, report that income on the final return. If the annuitant made a written election in the RRIF contract or in the will to have the RRIF payments continue to be paid to their spouse or common-law partner after death, that person becomes the annuitant and will start to get the RRIF payments as the new annuitant. Otherwise, the legal representative can consent to the deceased’s spouse or common-law partner becoming the annuitant, and the RRIF carrier has to agree to continue the payments under the deceased annuitant’s RRIF to the surviving spouse or common-law partner.
- A death benefit received on a T4A or T3 slips must be reported on the final return. Keep in mind that the first $10,000 of the death benefit is not taxable.
Deductions and Non-refundable Credits Included On the Final Return
Similar to the income of the deceased, some deductions have conditions of which return they should be reported on. The deductions that can be claimed on the final return include:
- RRSP deduction made prior to the DOD
- Childcare expenses paid before the DOD
- Deduction of the split pensions
- Carrying charges on investment accrued up to the DOD
- Deduction for CPP or QPP enhanced contributions
The non-refundable tax credits that can be claimed on the final return include:
- Age amount
- Basic personal amount
- Spouse/common-law amount (if the income of the deceased’s spouse or common-law partner is less than the basic amount)
- The amount for an eligible dependant
- Canada caregiver amounts
- CPP/QPP and EI contributions
- Canada employment amount
- Digital news subscription expenses
- Pension income amount
- Disability amount (for self or transferred from a dependant)
- Student loan interest
- Amounts transferred from a spouse or a common-law partner.
- Medical expenses incurred in the 24 months prior to the DOD as long as they have not been claimed on any other return. The medical expenses can be split between the final return and the rights or things return. However, the total expenses claimed on both returns is reduced by 3% of the total net income reported on all returns in the year of death.
- Charitable donations in the year of death which is no longer limited to 75% of the net income, instead it is 100% of the net income. The amount can be claimed on the final return or split between the final return and the previous year’s return.
Other Tax Consideration
Canada Workers Benefit (CWB) is claimed in full if the DOD is after July 1st, otherwise the claim is zero. If the deceased were a member of a partnership that was a qualifying journalism organization in 2020 or later, claim the new Canadian Journalism Labour Tax Credit (CJLTC) allocated to them by the partnership.
The GST/HST credit should stop after the DOD, any amounts received after this date should be returned to CRA. The surviving spouse should contact CRA to receive their portion of the credit. The spouse also should contact CRA to transfer the Canada Child Benefit (CCB) payments to them.