Tax decisions must be made following a death

The death of a family member or loved one is not something anyone likes to think about or prepare for. However, it is important to know the steps that must be taken regarding taxes when it occurs.

Being prepared for these difficult times can ease the burden on you and your family when it comes time to take care of the taxpayer’s final tax return.

The first step

If you are the legal representative, you should notify the Canada Revenue Agency of the date of death as soon as possible. Stop payments must be arranged, as well as transfers to survivors if allowable, if the deceased was receiving any of the following:

  • goods and services tax or harmonized sales tax credit
  • Canada Workers Benefit advance payments
  • Canada child benefit payments for a child

Determining the legal representative

You are the legal representative if you are named as the executor in the will, are appointed as the administrator of the estate by the court, or request to be the representative by completing an affidavit when there are no legal documents present.

The legal representative is responsible for:

  • filing the final return
  • making sure all taxes owing are paid
  • discussing amounts beneficiaries will receive and which are taxable
  • obtaining a clearance certificate to ensure all CRA balances owing are paid

Filing a tax return for the deceased

Items that are included on the deceased taxpayer’s final tax return include but are not limited to:

  • any unmatured RRSPs, RRIFs or TFSAs
  • capital property, such as land or shares in a farming corporation
  • any earnings prior to the taxpayer’s death, such as interest, rent or salaries

There are a number of tax saving strategies that can be used on a taxpayer’s final return if they owned farm property or were actively farming. One example would be ensuring all of their remaining $1 million capital gain exemption is used up.

Tax savings

There are several tax credits that can be claimed in full to save on taxes. These amounts include the basic personal credit, age amount, caregiver amount, and spouse or eligible dependent credit. You are also able to claim items such as charitable donations as well as medical expenses paid within the last 24-month period. These items will be applied to the final tax return and result in reduced taxes owing.

What are the due dates for final tax returns?

Below are the important dates you will need to be aware of when it comes to the filing deadline of the final tax return.

The tax deadline if the taxpayer did not carry on a business:

  • If the date of death is from Jan. 1 to Oct. 31, the deadline is April 30 of the year following the date of death.
  • If the date of death is Nov. 1 to Dec. 31, the deadline is six months after the date of death.

The tax deadline if the taxpayer carried on a business is as follows:

  • If the date of death is from Jan. 1 to Oct. 31, the deadline is June 15 the following year, but any balances owing are due April 30.
  • If the date of death is Nov. 1 to Dec. 15, the deadline is also June 15 of the following year, but any balances owing are due six months after date of death.
  • If the date of death is Dec. 16 to Dec. 31 the deadline is six months after the date, including any balance owing.

There are many other factors that must be discussed when a death of a taxpayer occurs, especially if they own farming assets or a farming business. Make sure to discuss them with a professional adviser.

Colin Miller is a chartered accountant and partner with KPMG’s tax practice in Lethbridge. Contact: He would like to thank Marden Litchfield and Chanelle Heatherington of KPMG for their assistance with writing this article.

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