Death of a Taxpayer
Losing a loved one is always a difficult experience. The legal representative of the estate has additional responsibilities to ensure that all their affairs are in order. We are here to help guide you through this process.
The legal representative of the estate is often the executor named in the deceased’s will. A representative can also be appointed by the courts in situations where there is no will. The first step for a legal representative is to notify Canada Revenue Agency of the death. You will need to provide a copy of the death certificate and a complete copy of the will or other legal document which names you as the representative. It is important to notify them promptly to obtain access to the deceased tax records as well as to cancel benefits such as the GST/HST credit and Canada Child Benefit (CCB). You should also notify Service Canada to cancel Canada Pension Plan, Old Age Security or other payments. Payments received after a certain time period may need to be repaid.
You will be responsible for ensuring that all income tax returns are filed, and all income tax balances owing are paid. A final income tax return will need to be filed for the year of death. This return is due no later than April 30th of the following year if the date of death is between January to October. The deadline is extended to six months after the date of death for deaths which occur in November or December. There may be additional filings in the form of optional returns depending on the deceased’s tax situation.
On the final tax return, you are generally required to report a deemed disposition of all assets owned based on the fair market value at the date of death. The fair market value of registered accounts such as Registered Retirement Savings Plans or Registered Retirement Income Funds is taxable in full as ordinary income. The unrealized gain on assets such as non-registered investment accounts and real property (other than a principal residence) is taxable as a capital gain. However, there are many exceptions to these rules depending on the deceased’s marital status, dependants, terms of their will and the named beneficiaries on their financial accounts. Many assets can be transferred to spouses or certain other dependants at cost and therefore the deemed gains can be deferred until the future. We can help you assemble a complete list of their assets, the fair market value at the date of death and review all relevant terms from the will to determine to correct tax treatment for each asset.
An estate return may be required if any income is earned after the date of death. This is often the case as it takes time to dispose of assets such as marketable securities and real property. Due to the deemed disposition on the final return, the fair market value at the date of death becomes the cost base to the estate to ensure there is not double taxation. The estate can be designated as a graduated rate estate for up to 36 months after the date of death in certain situations. This will provide access to graduated tax rates similar to those on individual income tax returns. If the estate cannot be settled within this time, any future income earned will be subject to tax at the highest marginal rate.
Your final duty is to ensure that the residual value of the estate is distributed per the terms of the will. The timing of the distributions can be at your discretion but is important to ensure adequate assets remain to pay all liabilities of the estate including income tax balances owing. You may wish to request a clearance certificate from Canada Revenue Agency before making any distributions to obtain certification that all income tax debts have been paid. Otherwise, you may be exposed to personal liability for these debts.
We understand this is a difficult time and we are here to help in any way we can.
For more information, please contact firstname.lastname@example.org or 1 844-GYTD-CPA