Filing a Tax Return for a Deceased Individual in Canada
When someone passes away, that person’s legal representative (executor or estate administrator) has to file a final income tax return and any other required returns. The estate is everything that a person owns when they die, including their property and their debts. The legal representative also advises the CRA, Revenu Québec (for Québec residents), and Service Canada of the date of death and sends in the appropriate documents. Filing deceased returns can be a time-consuming process unless you know what to prepare in advance.
What are the tax returns filed in Canada for a Deceased individual?
There are three types of deceased returns that might be filed after death. The legal representative has to file at least one return called the Final Return. However, it is possible to file multiple returns after death that includes Optional Returns and the Trust returns.
You may use the optional returns to declare certain types of income that cannot be claimed on the final return. Also, by claiming certain amounts more than once, splitting them between returns, or claiming them against certain kinds of income, you may be able to reduce or eliminate the deceased’s tax payable. For any further questions, please refer to the CRA’s T4011 guide, Preparing Returns for Deceased Persons, located here
When are the returns and the taxes owed due?
Each type of the deceased return has a due date:
The Final Return:
- If the death occurred between January 1st and October 31st, you have until April 30th of the following year.
- If it was between November 1st and December 31st, it is due six months after the date of death.
The Optional Returns:
- The Return for Rights or Things is due by the later of one year from the date of death or 90 days after the mailing date of the Notice Of Assessment (NOA) for the final return.
- The other optional Returns such as Return for a Partner or Proprietor and the Return of Income from a Graduated Rate Estate are due on the same date as the final return.
The T3 Trust Return:
The T3 Trust return is due 90 days from the end of the trust’s tax year. The T3 tax year starts the day after the death date and the end date can be any date up to one year from the date of death. This means that the due date of the T3 return could be before the final return.
Why is it important to file a Final Return?
When someone passes away, in addition to regular income tax, they may or may not have to pay tax on what they owned. The Final Return is how the legal representative finds out if the deceased owes any income tax. Like all other debts, income tax has to be paid by the estate first, before people can inherit; that is called “settling the estate”. The NOA for the deceased tax return is one of the documents the legal representative needs in order to get a clearance certificate and distribute property from the estate.
What is the difference between the executor and administrator as the legal representative?
In most cases, people die with a will that states who is the executor, the inheritors, and the beneficiaries. The executor has the authority to collect information (e.g. obtain a probate letter and pay the fees) and to distribute the deceased assets according to the will. The probate letter is obtained from Probate or Surrogate Court in the deceased province of residence to validate the will.
People who die intestate (without a will) would take longer for their estates to be distributed. Someone has to apply to the Surrogate court to be appointed the administrator. In most cases, the court appoints the surviving wife or one of the children to be the administrator. The administrator has to submit an affidavit form to the deceased tax center at his province or territory of residence prior to death. In Quebec, you will need to apply for the BD-81.7-V form.
What is the difference between a beneficiary and an inheritor?
A beneficiary is the person, the institution, the trustee, or the estate that the deceased has named in a contract to receive benefits under a will, an insurance policy, a retirement plan, an annuity, a trust, or another type of contract.
For example; a spouse can be the beneficiary of a retirement plan the deceased had with his employer, or the deceased’s nephew can receive the proceeds of his or her life insurance policy.
The others are simply inheritors and may have been named in the will. They may have to look into inheritance tax laws in Canada.
What do I do with cheques received after the death?
You may have to return certain cheques, but payment will definitely have to be stopped for all of them, such as:
- Canada Child Benefit (CCB)
- GST/HST/QST credit,
- northern village credit and other benefit cheques.
Vacation pay is income for the deceased. Unused sick leave is considered income for the estate or the beneficiary who receives it. If the deceased had a TFSA account, no amount needs to be reported but, depending on the type of beneficiary, it may no longer be a TFSA after the death.
What information do I need for the deceased’s tax return?
- You have to know the deceased’s income from all sources, from January 1st of the year of death up to and including the date of death.
- You will probably have to look at previous returns and may have to contact employers, banks, trust companies, stockbrokers, and pension plan managers.
- You will gather information slips and any other documentation that you need to indicate or estimate income and deductions.
The final return cannot be submitted through NETFILE.
What if I need information from the CRA or Revenu Québec?
You will need to provide a copy of the death certificate, the deceased’s social insurance number, and a copy of the document proving that you are the legal representative.
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