The death of a Canadian taxpayer triggers many tax implications. As the legal representative of a deceased person, there are many steps you must take to ensure that the person’s CRA file is in order. This must be done before you are able to distribute the estate to the deceased person’s heirs.
First Steps and Responsibilities of the Legal Representative
You are the legal representative of a deceased person if you are in one of the following situations:
- You are named as the executor in the will.
- You are appointed as the administrator of the estate by a court.
- You are the liquidator for an estate in Quebec.
- The estate designates itself.
- You are requesting to be recognized as the person who will manage the CRA tax matters for the deceased person, where there is no will or other legal documents. For all provinces and territories, other than Quebec, complete form RC552 Appointing a legal representative for a deceased person. Send a completed RC552 to the Authorizations Services Unit (ASU) of the deceased’s tax center. If the deceased was a Quebec resident, visit revenuquebec.ca.
It is the legal representative’s responsibility to file all of the required returns for the deceased person and to ensure that all taxes owing are paid.
Your first step as a legal representative is to contact the CRA to inform them of the person’s death.
- You can do this via telephone by calling 1-800-959-8281.
- You can also inform the CRA of the death by mail, using form RC4111 Request for the Canada Revenue Agency to Update Records.
After receiving this information, the CRA will ask you to submit a copy of the death certificate, and of the documentation appointing you as the legal representative, such as the will or court order.
If the deceased person was paying taxes by periodic installments, you can stop making these payments. However, any installments that were due but unpaid prior to the death must be made.
Income Tax Considerations
A final income tax return must be filed on behalf of the deceased person for the period from Jan. 1 to the date of his death. Other returns might be necessary such as optional returns or the trust return.
There are rules in the income tax laws that create deemed dispositions of assets at the moment immediately preceding someone’s death. This means that right before somebody dies, capital gains or losses are crystallized, or taxable income is created. These gains and losses must be accounted for in the final return, along with any income that was earned by the person prior to their death.
You will also need to file a return and pay the related taxes on behalf of the estate for any income earned between the time of death and the moment you distribute the estate’s assets to the heirs.
Each type of the deceased’s return has a different due date based on the time of death.
Registered Plans and Other Benefits
In addition to regular income taxes, care must be given to the tax treatment of registered plans and other benefits that the deceased person may have received.
The investments in Registered Retirement Savings Plans (RRSPs) and Registered Retirement Income Funds (RRIFs) are generally deemed to have been withdrawn by the person at the moment immediately preceding his death, and must be included in the person’s income. In certain cases, it is possible to roll these amounts over to a spouse to defer taxation.
The Lifelong Learning Plans (LLPs) and Home Buyers’ Plan (HBP) are effectively terminated by the death of the person and any unpaid amounts will be included in the person’s income. Again, in certain cases, these amounts may be passed along to a spouse to defer taxation.
If the deceased person had been receiving benefits such as the Goods and Services Tax/ Harmonized Sales Tax Credit (GST/HST), or the Canada Child Benefit (CCB), you may continue to receive these payments after the death because of a delay in updating of the CRA’s files. If this should occur, you can simply return the payments to the CRA since the person’s death no longer entitles them to these benefits. Spouses who may continue to benefit from these programs should contact the CRA to update their own files.
Clearance Certificate
Once you are ready to distribute the assets of the estate to the heirs, you may want to obtain a clearance certificate from the CRA.
This is not mandatory, but is a good idea. If you go ahead with the distribution of the estate’s assets without a clearance certificate, there is still a chance that taxes owing will surface and you may be held personally liable to pay them.
A clearance certificate confirms that the CRA considers the deceased person’s taxes for all years have been paid.
To request a certificate, use form TX19 Asking for a Clearance Certificate and send it to your CRA tax services office. Once the clearance certificate is issued, you can safely distribute the assets to the heirs.