Paying Taxes: One Great Certainty

05 Sep Paying Taxes: One Great Certainty

One of the executor’s core duties is filing the final tax return. Even for those who regularly do their own taxes, that final return may not be as simple as filling in the boxes in an online tax return program.

The executor is ultimately responsible for protecting the assets of the deceased. When it comes to filing the final, or terminal, return, the priority should be to save the estate money. The first step is to hire an accountant, preferably a professional with experience filing final returns. The final return is intended to tie up all the loose ends left over when a person dies, whether on the personal side or the business side, and a professional will be better able to identify any gaps or missing pieces.

Every estate requires a final return to tie up their personal income taxes. The return should include all income received up to the date of the death, as well as periodic payments such as rent, salary and accrued interest that the deceased would have received.

To file the final return, the executor should report the death to Canada Revenue Agency (CRA) with the deceased’s Social Insurance Number (SIN). Provide a copy of the death certificate and the will to indicate that who is serving as the executor. The name on the completed return should be “Estate of the Late <Name of Deceased>.”

In the process of completing the final return, it may become clear that there is income that doesn’t fit neatly in that final return. In this case, it may be necessary to file one of the three optional returns. These include:

• Return for “Rights or things”: This return covers income that is earned by the deceased but not received by the date of death (i.e., salary or bonuses not yet paid out, CPP received after date of death, work in progress).
• Return for business partner: If the deceased owned a business or was a partner in a business, the business may have had a fiscal end that was different from the calendar year. This return includes income earned between the end of the business’s fiscal year and the date of death.
• Return for graduated rate estate: If the deceased was receiving income from a trust (i.e., a parent or a spouse who passed away), the trust may have had a fiscal end that was different from the calendar year. This return includes income received from that estate between the end of the trust’s fiscal period and the date of death.

If you opt not to file an optional return, all income must be included on the terminal return.

This is where a professional can be helpful. Sometimes the estate is simple and doesn’t warrant filing extra paperwork; other times, that extra paperwork can save the estate a significant sum. Following a professional’s advice mitigates the executor’s risk and goes a long way toward demonstrating due diligence to the beneficiaries.

After completing the returns and paying any amounts owing, the last step is to request a clearance certificate from CRA to confirm that no further taxes are owing. Assets cannot be distributed before the certificate has been received.

To learn more about the role of the executor, contact us.

Joel Rose

With over 35 years of experience, Joel Rose helps families – and their businesses – to prepare for the future. He offers guidance and support to help his clients create estate plans and succession plans that meet the needs of the whole family. Through his extensive professional and personal experience, Joel is known for his compassion and his ability to find a creative solution to meet each family’s needs.