Deceased Tax Payer- Filing Deceased Tax Returns

April 27, 2018

Tax Accounting Services Toronto

The Canada Revenue Agency requires a final tax return filed when someone passes away. This is usually the duty of the legal representative, who is either a court-appointed administrator or the person named in the will as the executer. The legal representative undertakes final returns for a person’s entire estate which is everything owned, including debts and assets. If you are the one to undertake the filing process, you ought to know that it can be a daunting task. However, there are pointers that will save you a lot of trouble.

Your duties as the deceased’s legal representative

Firstly, it is your role to provide the Canada Revenue Agency (CRA) with the date of death as soon as a person passes on. This is so that CRA can update their records. You can notify them by calling the CRA number or by sending them an update request in form of a letter.To enable the CRA to update their records, you should also attach copies of the following documents in your letter:

1. The death certificate

2. The will, grant, letters of administration, or any other document that proves you are the legal representative.

3. The estate’s new maipng address, if apppcable.

Your other roles as the legal representative are:

1. Fipng all the deceased’s returns

2. Ensuring all taxes owed by the deceased are paid

3. Informing the beneficiaries of any taxable amounts received from the deceased’s estate

When are the taxes owed and the final tax returns due?

The law dictates that for those who have passed away between 1st January and 31st October, their representatives have up to the following year, on April 30th, to file returns. If death occurred between 1st November and 31st December, a legal representative has six months, after the date of death, to prepare the required tax documents.

Why it’s important

A final return is essential because it enables the legal representative to know if there is any income tax owed by the deceased. This is a very crucial step in the inheritance process now that the beneficiaries cannot get their inheritance before the legal representative has ‘settled the estate,’ which simply means paying all debts owed.

After the estate has paid income tax and all other debts owed, the relevant agency issues a deceased tax return assessment notice. This document is among those that enable the legal representative to acquire a clearance certificate for property distribution among the beneficiaries.

What information do you need for the final return?

Firstly, you need to know the total income of the deceased, from all the sources as from January 1st the year that he/she died, up to (and including) the date of death. This means that you will have to access previous returns and contact employers, trust companies, banks, pension plan managers, and stockbrokers.

Furthermore, you will have to gather all documentation and information slips needed to estimate or indicate deductions and income. Remember to check the deceased’s safety deposit boxes to know if there are additional sources of benefits and income.

What happens if you file the final returns late?

CRA has a late-filing penalty for all those who file final returns late, which have a balance owing, after the due date. On top of that, the agency charges interest on penalties and balances owing. Usually, the penalty is 5% of the balance owing as the fixed amount and for every full month that your returns are late, you pay an additional 1% of the balance owing.

To be on the safe side, file the final return on time to avoid these penalties even if you have not settled the full amount owing.