Canadian Estate Income Tax Returns

If you are an estate executor, it’s tax season.

Coping with a deceased’s income tax returns is a burden. Here is some general information about estate income taxes. I have added a final note about executor compensation.

First thing’s first, make sure you retain a licensed tax advisor.

You need to exercise due diligence hiring a tax expert. You are responsible for their mistakes, so choose wisely. The deceased may have trusted Tony because Tony made house calls. But that does not mean you should use Tony. He happens to have no insurance or experience with estate returns.

Correcting mistakes made in the estate tax returns can be doubly painful. You, as executor, may end up paying penalties and interest.

Filing revised tax returns can also delay the final distribution of the estate. Beneficiaries can start calling you if they believe their inheritance is overdue.

How about some good news about instalments? You don’t have to pay any more tax instalments for the deceased. However, you must pay any unpaid instalments due before the date of death.

You must arrange to prepare and file income tax returns. The three main types of tax returns typically required are:

  1. One for the year before the death, if the deceased did not file a return.
  2. One from January to the date of death (called a final or terminal return).
  3. One for income received after the date of death during the tax year of the estate administration (T3 Trust Income Tax and Information Return).

Consult a qualified accountant or tax lawyer to discuss the tax liabilities of the deceased. Be clear about your responsibilities as executor. Confirm who will file returns. The accountant may be able to prepare additional, optional returns that can save taxes.

As executor, you are personally liable to ensure all taxes are paid before distributing the estate. Normally this requires you to request a final tax clearance to protect yourself.

When Are Returns Due?

You are allowed at least six months before the final return is due.

You should confirm this date with your tax advisor. Do not forget to diarize the date. Follow up to find out what documents the accountant will require. It may take you some time to collect them.

Do not use a software or tax service to prepare any tax returns. You are liable for any mistakes made.

What if you file the final return late and money is owing? You could be responsible for interest and a filing penalty. The final return and any taxes owing are due as follows:

Period when death occurred
January 1 to October 31 – Due date is April 30 of the following year
November 1 to December 31 – Due date is six months after the date of death

Compensation for Executors and Estate Trustees 

Will you request fees for acting as executor?

If so, you should expect to report the compensation as income. You can do this with a T4 slip or include it in your business income.

You can contact Canada Revenue Agency (CRA) for more information by calling 1-800-959-8281 or online: What to do when someone has died – http://www.cra-arc.gc.ca/tx/ndvdls/lf-vnts/dth/menu-eng.html.

About Ed Olkovich

Edward Olkovich (BA, LLB, TEP, and C.S.) is an Ontario lawyer, nationally recognized author and estate expert. He is a Toronto based Certified Specialist in Estates and Trusts. Ed’s law firm website is MrWills.com © 2014