When someone dies, their affairs have to be wound up, which includes filing a final tax return with the Canada Revenue Agency (CRA). The deceased’s property is treated as if it is sold at fair market value, which may result in capital gains or capital losses payable by the estate. There are also optional returns you can file depending on the type of income being claimed on behalf of the deceased.
Final Return
The final return is the only tax return that is mandatory. The final return is one that covers the last tax year – full or partial depending on the date of passing – of the departed.
A T3 Trust return may be filed, but is only required if the deceased’s estate receives income after they pass away or if ordered by the court.
Optional Returns
- Optional returns include income that is otherwise reported on the final return that may decrease or do away with tax for the deceased altogether.
- By filing both an optional return and a final return, certain items can be claimed more than once.
- The income may also be split between returns or claimed against particular kinds of income.
The items you can claim in full on both the optional return and the final return include:
- the basic personal amount
- the age amount
- the spouse or common-law partner amount
- the amount for an eligible dependant
- the amount for infirm dependants age 18 or older
- the amount for dependant children
- the caregiver amount
Deadline for Filing a Final Return
If the death occurred between Jan. 1 and Oct. 31, the due date for the final return is April 30 of the following year.
If the death occurred between Nov. 1 and Dec. 31, the due date for the final return is six months after the date of death. In this case, filing an optional return early can sometimes be a good strategy if it reduces taxes, since the final return and the optional return are both due six months after death.
Deadlines if the Deceased Carried on a Business
If the deceased was carrying on a business, there are different filing deadlines.
- If the death happened between Jan. 1 and Dec. 15, the due date for the final return is June 15 of the following year.
- If the death happened between Dec. 16 and Dec. 31, the due date for the final return is six months after the date of death.
How the Deceased’s Property Is Treated Upon Passing
- When a loved one dies, the CRA considers the deceased to have disposed of all capital property at the date of death. This is called ‘deemed disposition‘.
- The CRA considers the deceased to have received the ‘deemed proceeds of disposition‘.
- The capital property is deemed to have been sold at its fair market value at death.
As mentioned, this can result in a capital gain or capital loss.
- You are not allowed to claim a capital loss for depreciable property like a car or personal-use property like the deceased’s principal residence.
- Depreciable property may also be subject to recapture if capital cost allowance is claimed.
- A terminal loss may also be claimed instead of a capital loss.