Deceased taxpayers

Executor’s responsibilities

A deceased’s legal representative is the person named in the will (executor) or a person appointed to handle the estate if there’s no will or executor.

From a tax perspective, the main responsibilities of the legal representative are as follows:

  • File all tax returns for the deceased.
  • Make sure all taxes are paid.
  • Obtain clearance certificate or authorization from the tax authorities to distribute the assets of the deceased.
  • Let the beneficiaries know which of the amounts they receive from the estate are taxable.

Government authorities and financial institutions should be notified as soon as possible of the date of death. The deceased’s social insurance number and date of birth must be provided if

  • the person was receiving OAS, CPP or QPP benefits;
  • the person was receiving the GST/HST or QSTcredit;
  • the person or his/her spouse was receiving the CCTB or the UCCB or as of July 1, 2016, the Canada Child Benefit;
  • the person was a child in respect of whom the CCTB or UCCB , or as of July 1, 2016, the Canada Child Benefit was being paid; or
  • the person was receiving benefits under a RRIF or RRSP.

Instalments

No instalments have to be paid for a deceased person for the period after the date of death. Nevertheless, the legal representative should ensure that any amounts due prior to the date of death were in fact paid.

Canada Pension Plan (CPP) and Old Age Security (OAS) payments

The CPP and OAS pensions are paid for the month during which the taxpayer died and have to be reported in the tax return of the deceased. Any cheques received for months following the month of death have to be returned to the federal government.

GST/HST credit

GST/HST credit payments are issued in July, October, January and April. If a single individual dies before one of these months, any payment must be returned to the government. If a person dies during the month the payment is made, the estate will be entitled to it.

If the deceased had a spouse, the surviving spouse may be eligible for the GST/HST credit. The spouse should contact the CRA and request any remaining credit for the year and file a tax return for the preceding year (if this has not already been done).

Canada Child Tax Benefit (CCTB), Universal Child Care Benefit (UCCB) and Canada Child Benefit

If the deceased leaves a surviving spouse who is the father or mother of a child with respect to whom the deceased was receiving the CCTB (see topic 99) or the UCCB (see topic 99) benefit, prior to July 1, 2016, or the Canada Child Bene t on or after July 1, 2016 (see topic 99), the surviving spouse should contact the tax authorities to have the benefits transferred to her or him. If, on the other hand, the surviving spouse was the recipient of these benefits, he or she can ask the tax authorities to recalculate the benefits taking only his or her income into consideration.

If the person now responsible for the care of the child is someone other than the father or mother, this person has to submit a written request to the tax authorities to be recognized as eligible to receive these payments. If the deceased was an eligible child, the benefit entitlement ceases the month following the death. Any amounts received in that or subsequent months have to be returned.

As a legal representative, one of your main responsibilities is to ensure that the deceased’s taxes are paid. This may necessitate obtaining tax information that is available from the respective tax authorities. To have access to this information, you’ll have to present a copy of the death certificate, the deceased’s social insurance number and a certified copy of the will or other document to show that you’re the legal representative of the deceased person.

You must also file, where applicable, tax returns for the year of death and any prior years for which the deceased had not filed a tax return. In addition, for the year of death, you may be able to elect to file more than one return for certain types of income. These are referred to as the final return and optional returns. By filing more than one return, income taxes on the deceased’s income may be reduced or even eliminated in certain cases.

The deadlines for filing returns may vary depending on whether it’s a final return, an optional return or a return for a year prior to death.

In general, for the final return, you must comply with the filing dates for tax returns (April 30 of the following year or June 15 for taxpayers carrying on a business). However, you have up to six months from the date of death if this is later. For example, if a person dies on December 20, 2015, you have until June 20, 2016 to file the final return. On the other hand, if the taxpayer died on May 10, 2015, the filing deadline would be April 30, 2016.

Taxes must be paid no later than the filing due date for the returns, unless the filing date is June 15 (for taxpayers carrying on a business), in which case the payment date will be April 30. If a return is filed late, a late-filing penalty and interest are charged.

There may be as many as three other separate types of returns for a deceased taxpayer:

1. A “rights or things” return (see “Income,” below)
2. A return reporting business income
3. A return arising from a testamentary trust

The filing dates for optional returns and the payment of any balances owing are the same as those for a final return, except for the “rights or things” return, where the filing date and the date for the payment of any balance owing is one year following the date of death or 90 days after the date a Notice of Assessment or Notice of Reassessment is mailed with respect to the final return for the year of death (if this is a later date).

Income

The final and optional returns of a deceased taxpayer have to report all income for the period from January 1 of the year of death to the date of death. Income earned after that date should generally be reported in the estate’s return.

All periodic amounts earned prior to death—such as salary, interest, rent and most annuities—must be reported in the final return, even if the deceased did not receive them before he or she died. This rule doesn’t apply if the amounts were not payable prior to death or if such annuities were considered as having matured at the time of death. If this is the case, certain income of this nature can be reported in an optional return.

“Rights or things” are income amounts that the deceased was entitled to receive before he or she died but that had not yet been paid. The main rights or things are

  • employment income (salaries, commissions, vacation pay) owing by the employer but not payable at the time of death for a pay period that ended before the date of death, as well as retroactive payments paid pursuant to a collective agreement signed before the date of death;
  • uncashed matured bond coupons;
  • accumulated unpaid bond interest;
  • unpaid dividends declared before the person died;
  • OAS, EI and CPP benefits not yet received for a period ended before the date of death or for the month of death;
  • work-in-progress if the deceased carried on a business and had elected to exclude work-in-progress when calculating income;
  • retroactive payment of a disability annuity or EI benefit paid after the date of death, but to which the deceased was entitled prior to that date; and
  • pension plan, RRSP or RRIF payments for the month of death that had not been received at the date of death.

If you elect to file an optional return, all rights and things have to be reported therein except those transferred to beneficiaries. Rights or things transferred to a beneficiary before the filing deadline for an optional return have to be reported by the beneficiary.

If the deceased was a beneficiary of a testamentary trust in the year he or she died, the fiscal year of the trust was not the calendar year36, and the deceased died after the end of the trust’s year, income from the trust from the end of the trust’s year to the date of death can be taxed in an optional return.

If the deceased carried on business as a partner or sole proprietor and the fiscal year of the business was not the calendar year, the legal representative can elect to report the business income earned between the end of the fiscal year and the date of death in an optional return.


36 For example, the trust is a graduated rate estate (GRE). A GRE is an estate that arose on and as a consequence of an individual’s death. Only one GRE can exist in respect of a deceased individual, and it can exist only for a 36-month period after the date of death to allow for the administration of the estate.

 

Capital properties

In general, deceased persons are deemed to dispose of all of their capital property at FMV immediately before death.

There is an exception to this rule for capital properties left to a spouse or common-law partner or a qualifying spouse trust. In this case, any capital gain or loss is deferred until the property is disposed of by the spouse or common-law partner or the spousal trust. The legal representative can still elect to have the transfer take place at FMV. For example, you might want to make this election if the deceased owned shares in a qualified small business corporation (see topic 136), owned qualified farm or fishing property (see topics 137 and 138), or had capital losses that had not yet been utilized.

Unused capital losses from prior years may be claimed in the year of death or the immediately preceding year. Available capital losses must first be used to reduce capital gains in those years. Any remaining capital losses may then be deducted from other sources of income, subject to a restriction based on the total capital gains deduction that has been claimed over the years. As these special rules on the deductibility of capital losses for deceased persons are quite complex, consult your tax adviser for further details.

There are also rules where a decrease in the value of investments held in an RRSP or RRIF that occurs after death but before the final distribution to the beneficiaries may be able to be claimed on the final return for the deceased (see topic 66).

Funeral and estate administration expenses

Funeral and estate administration expenses are personal expenses and are not deductible in calculating the income of the deceased or the estate.