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Deceased Persons Tax Planning

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.
  • You are requesting to be the deceased’s representative by completing an Affidavit form when there are no legal documents. 

Clearance certificate 

As the legal representative, you may want to get a clearance certificate before you distribute any property under your control. A clearance certificate certifies that all amounts for which the deceased is liable to the CRA have been paid, or that the CRA has accepted security for the payment. If you do not get a clearance certificate and distribute the assets of the estate, you may be personally liable for the amount of tax owed by the deceased, to the extent of the value of the assets distributed. A clearance certificate covers all tax years to the date of death. It is not a clearance for any amounts a trust owes. If there is a trust, a separate clearance certificate is needed for the trust.

Final return

On the final return, report all of the deceased’s income from January 1 of the year of death, up to and including the date of death. Report income earned after the date of death on a

T3 Trust Income Tax and Information Return.

What date is the final return due?

Generally, the final return is due on or before the following dates:

  • April 30 of the following year if the death was occurred January 1 to October 31 
  • 6 months after the date of death if the death was occurred November 1 to December 31 

What happens if you file the final return late? 

If you file the final return late and there is a balance owing, the CRA will charge a late-filing penalty. The CRA will also charge you interest on both the balance owing and any penalty. The penalty is 5% of any balance owing, plus 1% of the balance owing for each full month that the return is late, to a maximum of 12 months. The late-filing penalty may be higher if the CRA charged a late-filing penalty on a return for any of the 3 previous years. 

What is the due date for a balance owing? 

The due date for a balance owing on a final return depends on the date of death. 

  • April 30 of the following year if the death was occurred January 1 to October 31
  • 6 months after the date of death if the death was occurred November 1 to December 31 

Optional returns

Optional returns are returns on which you report some of the income that you would otherwise report on the final return. By filing one or more optional returns, you may

reduce or eliminate tax for the deceased. This is possible because you can claim certain amounts more than once, split them between returns, or claim them against specific

kinds of income.

Deemed disposition of property

The tax treatment of capital property the deceased owned at the date of death is explained. Capital property is also explained in general, as well as the particular treatment of depreciable and farm and fishing property. 

When a person dies, the CRA considers that the person has disposed of all capital property right before death. The CRA calls this a deemed disposition. 

Also, right before death, the CRA considers that the person has received the deemed proceeds of disposition (throughout this chapter, this will be referred to as deemed

proceeds). Even though there was not an actual sale, there can be a capital gain or, except for depreciable property or personal-use property, a capital loss. 

US & Canada Tax - Lily Lo CPA Professional Corporation - Edmonton, Alberta

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