Death of a Taxpayer – A To Do List

Death of a family member is one of the most stressful events in life.  To compound the grief, there are final tax matters to deal with either by April 30th of the following year or 6 months after the date of death.

What To Do Upon The Death of a Taxpayer?

Upon the death of a taxpayer, at a minimum, there is a final return (“terminal return”) to be filed with the CRA and three optional returns to be filed if desired.  In addition, a trust return to report income received after death is often required if the deceased taxpayer owned capital assets at the time of death.  The time provided by the Income Tax Act to meet the filing deadline is very tight especially if the deceased tax payer had substantial capital assets other than the principal residence and cash in a bank account.

Before addressing the compliance requirements and the tax planning options available to the surviving family members, a list of important steps to be taken should be first addressed.

The legal representative of the deceased (“the executor”) should forward CRA the death certificate, the will of the deceased and an updated signed T1013 to give professional advisors authorization to deal with CRA directly.  This should be done as soon as possible to avoid delays in obtaining important information such as capital losses carryforward, undeducted donations from prior years, and capital gains exemption already claimed in the past.  CRA has in its database, very important prior year tax information for tax planning on the terminal return.

Who is Responsible for Filing a Deceased Person’s Tax Return?

The executor is responsible for all matters such as the probate, CRA compliance filings and obtaining the clearance certificate from CRA.  The accountant often works very closely with the executor on matters pertaining to the CRA to minimize late filing penalties.  Even as the probate process continues, the executor and the accountant could collaborate to obtain adjusted cost base information to start determining the gains and losses accrued on assets.

Two important dates in tax planning for a deceased person is the first anniversary from the date of death and the calendar year end following the year of death.  Capital assets and RRSP’s which have decreased in value since the date of death must be sold within specified time in order to utilize the decrease in value as a tax write off.  If the actual disposition happens after the deadline, the decrease in value is not available for tax use.

Also, the tax return is called a terminal return because it will be the last return filed for this taxpayer.  With this comes tax planning opportunities to make elections which are available one last time such as electing to trigger capital gains and take advantage of all the personal credits and lower tax brackets of the deceased taxpayer.  Also, electing to file optional returns further multiply some personal credits and the lower tax brackets.

Contact Mew & Company Professional Tax Advisors in Vancouver

Death of a loved one is stressful enough.  Consider the use of a professional tax advisor to lower the burden of tax compliance and effective tax planning.