Preparing A Final Tax Return

Preparing a Final Tax Return

When a loved one passes away, you will have many tasks to tend to and decisions to make. One of those tasks may be completing the individual’s final, or terminal, tax return.
The first step is to inform the Canada Revenue Agency that the person has passed away. You can call the CRA at 1-800-959-8281 or you can file form RC4111. The CRA provides the booklet “Preparing Returns for Deceased Persons” to help you; ask for a copy.

You will need the person’s social insurance number. To enable the CRA to discuss the deceased’s file, or release any information, you will also have to provide a copy of the death certificate and the Will or other document proving that you are the estate’s legal representative.

To complete the terminal return, first write in the identification section “Estate of the Late” before the person’s name and fill in the date of death. Gather information on all income the person had: annuity payments, pension amounts, salary, rental income, investment earnings, etc. Note that the Canada Pension Plan Death Benefit is to be reported by the person who receives it, not on the deceased’s return.

If any income is earned by the estate after the person has died, such as income on rental property or investments, you will need to file a T3 trust return within three months of the first anniversary of the death.

You may also file other returns on behalf of the estate that essentially divide income and therefore reduce taxes. These are optional, so definitely talk to your accountant about whether any of them could benefit you or the deceased’s estate. First is the return for rights or things. This return is for all amounts that hadn’t been paid at the time of death but would have been considered income if they had been paid. Second, you may also file a return for a partner or proprietor, on which you can report any income from the previous fiscal period. Finally, you may file a return for a testamentary trust.

The deadline for filing the terminal tax return depends on when the person passed away. If they died between January 1 and October 31, the return and any balance owing are due by April 30 the following year, as it normally would be. If the person died in November or December, you have six months from the date of death to file the return. There could be penalties for filing late, so make sure this job doesn’t get forgotten. Also make sure that a return has been filed for the year previous to the one in which the taxpayer died. For example, if someone dies early in 2014, they may not have filed their 2013 tax return yet. So you will need to ensure that both the regular 2013 return and the 2014 terminal return are filed.

After the Notice of Assessment is received from CRA for the deceased’s last tax return, the executor should send form TX19 to CRA to request a Clearance Certificate to indicate that there are no taxes owing. This Certificate should be received before distributing all the assets in the estate.

Managing the financial affairs of someone who has passed away can be complicated, and if you’re not familiar with the ins and outs of the Income Tax Act you may end up paying more tax than you have to or missing a deadline. Your best bet is to talk to a professional estate-planning advisor or accounting professional, such as the team at Dedicated Financial Solutions, to ensure you are taking advantage of everything that’s available to you. As the authors of Managing Alone: Your Trusted Advisors’ Guide to Surviving the Death of Your Spouse, they have the knowledge and experience to guide you through this difficult time, contact them today.

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