What to do
1.Tell CRA the taxpayer has died using form RC4111 or by calling 1-800-959-8281
note! Also tell Service Canada so it can stop CPP and OAS. Call 1-800-622-6232. Have the SIN and date of death handy, and request a pro rata cutoff.
2. If the taxpayer was getting the:
GST/HST sales tax credit
Working Income Tax Benefit advance payments
Canada Child Tax
Benefit payments or Universal Child Care benefit payments (either for his child, or if the deceased is the child)
and ask to stop payments or transfer them to a survivor. Otherwise, the estate has to return them.
Working income tax benefit:
Child benefits: 1-800-387-1193
3. File the terminal T1
|If client died||Due date|
|January 1 to October 31||April 30 of the following year|
|November 1 to December 31||Six months after the date of death|
Penalties for late filing: 5% of any balance owing, plus 1% of the balance owing for each full month the return is late, to a maximum of 12 months.
What CRA needs
CRA will release information about the deceased’s tax records if it receives a copy of her death certificate, her SIN and a complete copy of the will or other legal document naming the legal representative.
Client dies February 3, 2014 but hadn’t filed 2013 taxes.
Her terminal T1 is due August 3, 2014, six months after she died.
Her balance owing is due April 30, 2014 (as usual).
Client dies February 3, 2014 but hadn’t filed 2012 taxes.
Her tax return was due April 30, 2013 (as usual). Her balance owing was due April 30, 2013 (as usual).
- In the identification area, write “The Estate of the Late” before the name of the deceased.
- In the income section, report amounts she’d regularly get paid, but didn’t receive before she died (e.g., salary, interest, rent, royalties, annuity payments). For wages, only the amount accrued from the beginning of the pay period when the employee died to the date of death needs to be reported.
- Report all investment income the deceased received from January 1 to the date of death, even if it hasn’t been paid yet. Also include:
- amounts earned from term deposits, GICs and other similar investments from the last time these amounts were paid to the date of death; and
- bond interest earned or accumulated from the last time it was paid to the date of death,
if the deceased did not report it in a previous year.
- For Mature RRSP income: report payments received from January 1 to date of death. The beneficiary will report the year’s remaining payments.
- For non-Matured RRSP income: report an amount equal to the fair market value of all RRSP property (box 34 of the T4RSP slip issued to deceased). If the entire RRSP rolls over to the surviving spouse or common-law partner before the end of the year following the year of death, the institution won’t issue a T4RSP slip in the deceased's name. Instead, the surviving spouse reports the payment and claims a deduction equal to the amount transferred.
4. File a T3, if applicable
If the estate earns income after death, such as investment income, the estate has to file a T3 90 days after the first anniversary of the date of death. Charitable donations cannot be carried forward from a T1 return to a T3 return.
CRA lets people file three optional returns for the year of death. They’d help a client save tax, because each allows someone to “income split with himself,” says Kevin Wong, a partner with MNP in Vancouver. With each return, a person “could get another basic exemption and another set of graduated rates.” (If not using these returns, report the income on the T1.)
The three optional returns are:
Return for rights or things. Report ALL amounts that hadn’t been paid at the time of death but would have been included in income when received. (For definitions, see http://www.cra-arc.gc.ca/E/pub/tg/t4011/t4011-e.html#P465_65004) You can’t split rights and things between the T1 and the optional return.
Return for a partner or proprietor. Report income from the end of the previous fiscal period to the date of death.
Return for testamentary trust income (usually from a predeceased spouse). Report trust income from the end of the previous fiscal period to the date of death.
How the optional returns save tax; how to split pension income posthumously; and definitions of T3 income