US & Canada Tax
Lily Lo CPA Professional corporation
Deceased Persons Tax Planning
You are the legal representative of a deceased person if you are in one of the following situations:
As the legal representative, you may want to get a clearance certificate before you distribute any property under your control. A clearance certificate certifies that all amounts for which the deceased is liable to the CRA have been paid, or that the CRA has accepted security for the payment. If you do not get a clearance certificate and distribute the assets of the estate, you may be personally liable for the amount of tax owed by the deceased, to the extent of the value of the assets distributed. A clearance certificate covers all tax years to the date of death. It is not a clearance for any amounts a trust owes. If there is a trust, a separate clearance certificate is needed for the trust.
On the final return, report all of the deceased’s income from January 1 of the year of death, up to and including the date of death. Report income earned after the date of death on a
T3 Trust Income Tax and Information Return.
What date is the final return due?
Generally, the final return is due on or before the following dates:
What happens if you file the final return late?
If you file the final return late and there is a balance owing, the CRA will charge a late-filing penalty. The CRA will also charge you interest on both the balance owing and any penalty. The penalty is 5% of any balance owing, plus 1% of the balance owing for each full month that the return is late, to a maximum of 12 months. The late-filing penalty may be higher if the CRA charged a late-filing penalty on a return for any of the 3 previous years.
What is the due date for a balance owing?
The due date for a balance owing on a final return depends on the date of death.
Optional returns are returns on which you report some of the income that you would otherwise report on the final return. By filing one or more optional returns, you may
reduce or eliminate tax for the deceased. This is possible because you can claim certain amounts more than once, split them between returns, or claim them against specific
kinds of income.
Deemed disposition of property
The tax treatment of capital property the deceased owned at the date of death is explained. Capital property is also explained in general, as well as the particular treatment of depreciable and farm and fishing property.
When a person dies, the CRA considers that the person has disposed of all capital property right before death. The CRA calls this a deemed disposition.
Also, right before death, the CRA considers that the person has received the deemed proceeds of disposition (throughout this chapter, this will be referred to as deemed
proceeds). Even though there was not an actual sale, there can be a capital gain or, except for depreciable property or personal-use property, a capital loss.