You're the lucky one – you've been chosen as the executor of your loved one's estate. It's an honour – yes, but as it's said… "with great power comes great responsibility". One of those responsibilities is the final tax return after death.
The task doesn’t have to be complicated when you have the right resources and assistance. If you’re still not comfortable with the process, we suggest you hire a professional to take over the tax filings of the estate process.
No matter what you choose, the first step is to contact the Canada Revenue Agency to advise them of the death.
From that point, you can work through this blog post for assistance. We will go over what a final tax return includes, how to file it, and when. From there, you will pay the taxes and get a clearance certificate, and then and only then will you disburse the assets to the beneficiaries. So, let's get into it!
What Is the Final Tax Return After Death?
Generally, a final tax return will tell you whether the deceased owes income tax. It includes income from all sources from January 1st of the year of death up to the date of death.
You may have to do a little digging to confirm the deceased's income sources. You would start by reviewing the deceased's previous tax returns. You would then contact the deceased’s employers, banks, pension plan managers, trust companies, etc.
There are three types of returns that may need to be filed, including:
A Final Tax return – Required in all situations.
Optional Returns – This could include the Return for Rights or Things, a Return for a Partner or Proprietor and/or the Return of a Graduated Rate Estate.
Trust Return (Estate Return) – Required if the deceased taxpayer receives income after the date of death.
As stated above, the Final Tax Return is a definite requirement when finalizing an estate. In more complex situations, you must use other types of returns. They are all due at different times, so it's important to do your research.
We will cover Optional Returns and Trust Returns in Parts 2 & 3 of this blog series in the coming months. Remember, if you’re not sure what applies to your situation, it’s best to speak to a professional.
When Do You File the Final Tax Return After Death?
Knowing the due dates for the final tax return is essential to avoid late penalties. Also, the sooner the last return is filed, the sooner the beneficiaries will receive their money and the sooner the estate will be finalized. The due dates depend on the date of death, and more specifically:
If the death occurred between January 1st and October 31st inclusive, the due date would be April 30th of the following year.
If the death occurred between November 1st and December 31st inclusive, the due date for the final return is six months after the date of death.
If the due date falls on a Saturday, Sunday, or public holiday, your return would be due on or before the next business day.
Different circumstances would also apply to those who carry on business in the preceding year, and those details can be found here.
How Do I File the Final Tax Return After Death?
You will complete the final tax return on a T1 Form. It's also essential to ensure that regular annual tax filings are up to date for previous years.
The following steps must be completed when filing the final tax return after death:
Determine the due date for the final return.
Complete the Identification Area, which includes the deceased's information as well as your address as the return address.
Calculate the Total Income. Common types include employment income, Old Age Security Pension, CPP, etc.
Calculate the Net Income. This would include any deductions, including child care expenses, RRSP deductions, pension adjustments, etc.
Calculate the Taxable Income. This would include any net capital losses.
Calculate the Federal non-refundable tax credits.
Calculate the Refund or Balance Owing.
For more information, you can refer to the guide created by the Canada Revenue Agency regarding preparing returns for deceased persons.
Not Comfortable? Get Help.
Filing a final tax return after death can be complicated, especially if more than just basic income is involved. It may be possible that multiple returns need to be filed in addition to the final return, such as a Return for Right and Things or a Trust Return.
Although it's possible to handle the process independently (using all of the valuable online resources noted above), it’s not completely necessary. Get peace of mind knowing that you filed the deceased’s final tax return correctly to ensure that the proper tax is paid, and the appropriate asset amounts are paid to beneficiaries.
Hire a professional. We can help. Contact us today to get help filing your loved one’s final tax return after death.