The executor of an estate must register with the Canada Revenue Agency (CRA) and make sure the final tax return of deceased is filed on time. The executor may also file up to three types of optional tax returns to help minimize the taxes payable by the estate.
Responsibilities of the Executor
When someone passes away, there are a number of important tasks that must be performed. After the executor fees are paid from the estate, the executor must register as an employer with the CRA. Once registered, the applicable payroll deductions, including income tax, Canada Pension Plan (CPP) contributions and Employment Insurance (EI) premiums, are withheld. This is only applicable if the executor does not look after other people’s estates as a business.
File Tax Returns
The executor is responsible for ensuring that the required tax returns are filed for the deceased person. A final tax return and up to three optional returns may be filed in the year of death.
The final return is always required for a deceased person. On the final return, you must report the income earned by the deceased person between Jan. 1 and the date of death. Any income earned after the death of death must be reported on the T3 (Trust Income Tax and Information Return).
If the deceased person passed away between Jan. 1 and Oct. 31, file the tax return by April 30 of the following year. If the death occurs between Nov. 1 and Dec. 31, you have six months after the date of death to file the tax return.
If the final return is filed late and the deceased has a balance owing, there is a penalty of 5 percent, plus 1 percent of the balance owing for each month the return is late, for up to 12 months.
Optional Tax Returns
Optional tax returns are tax returns for the deceased on which income is reported that would normally be reported on the final return. Filing at least one optional return may lower or eliminate any taxes payable for the estate.
File a return for “rights or things,” income amounts that the deceased was entitled to, but were not paid at the time of death. These claims can come from employment income that is owed, as well as other sources.
File a return for a partner or proprietor if the deceased had been a sole proprietor or a partner in a business. The deceased person’s business may have a fiscal year that is different from the calendar year. If the date of death is after the business’s fiscal year end but before the end of the calendar year, file this return.
File a return for income from a testamentary trust for a deceased person who is receiving funds from a testamentary trust. The trust may also have a different fiscal period than the calendar year.
Which TurboTax Is Best for You?
When a loved one has passed, all the paperwork and legal jargon can seem a little confusing or daunting to deal with. But with the right information ahead of time, you can still navigate the tax waters to file your return with TurboTax Online.
However, if you feel a bit overwhelmed, consider TurboTax Live Full Service and have one of our tax experts do you return from start to finish.