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Death Of A TaxpayerWhat you will need to know.
The death of a friend or relative is not easy, to say the least. The statutory income tax filing requirements only add to the high stress levels especially if you are the executor. The guidance of a professional accountant, knowing which steps have to be taken and by what deadlines, could help reduce some of this stress. What
has to be filed and when? Canada Customs & Revenue Agency has special rules for the tax returns of deceased taxpayers. The executor must file the final return by the later of the normal filing deadline (April 30 following the tax year) and six months after the date of death. Any unpaid taxes after these dates are subject to interest and penalties. There are other special tax returns that may also be filed which can reduce the overall tax liability. What items are included in the final tax return? Employment, investment and business income earned up to the date of death must be reported on the final tax return. Income from investments (e.g., bank accounts, rental properties, etc.) earned after death are not taxable to the deceased. These items are taxed either in the estate of the individual or personally by the beneficiaries. All possessions at the time of death are deemed to have been disposed of at their fair market value and resulting gains and losses need to be reported and taxed in the final return. If, for example, a taxpayer owned shares of George Weston (GW) worth $10,000 at the time of death but only paid $1,000 for the shares, a capital gain of $9,000 would have to be reported on the final return. The new tax cost to the beneficiaries of the GW shares would be $10,000. The deemed gain on the deceased taxpayer’s principal residence is usually not taxable (depending on the lot size and prior use of the property). There is an opportunity to transfer property without immediate tax consequences. Certain property can be transferred tax free to the spouse or trust created at the time of death. The gains or losses on these properties are realized when the item is actually sold. One tax strategy would be to recognize accrued losses at the time of death and defer accrued gains until actually sold. Unless the deceased person leaves their registered retirement savings plan (RRSP) to a spouse (or dependent child or grandchild, in rare cases), the entire value of the RRSP will be subject to income tax. Similar rules apply to registered retirement income funds (RRIFs).
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