When a loved one passes, the surviving family usually has a series of questions and concerns. A surviving spouse is often concerned about money and taxes, all at a time when they are dealing with the trauma of losing a loved one.
Most people have to deal with an estate once in a lifetime. It’s easy to see, then, that dealing with the final return and the estate raises a number of questions and concerns for the family and the person administering the estate.
Fortunately, professionals such as Chartered Professional Accountants and lawyers deal with these questions on a regular basis as they provide advice and assistance on estates each year.
We can help you answer questions such as:
Who do I need to let know that the person has passed?
When do I have to have the final return filed?
How much tax is this going to cost?
When does this all need to be done by?
The beneficiaries of the estate are asking when they will get their money?
How long will this take?
Do I really need to have professional help with these matters?
At KMA we strongly encourage anyone dealing with an estate to seek out legal advice and the help of a CPA.
On this page
What Is the Impact of Someone Passing?
While Canada does not have an inheritance tax as there is in the U.S., there are a number of tax consequences that happen when assets such as business, property, stocks, and bonds are transferred to the next generation.
There is a deemed sale of all of your assets when you pass away. If you have been holding assets for a long time, there may be a significant tax bill associated with that asset.
So there are two separate periods to consider:
The period up to the date of passing; and
The period after the passing
Final Return
This covers the dates between December 31st and the date of passing. All income up to the date of passing goes onto this return. For example, if interest from a GIC is being earned from January 1st to July 31st (the date of passing), then the interest for this period goes onto the final return.
There are some events that are triggered when a person passes. Pensions, RRSP, and RRIF’s can present special challenges and possibly large tax bills. There is the “deemed” disposal of assets. It is referred to as deemed disposal because for Canadian tax purposes, it is if all assets were sold.
In addition to these points, there are special rules regarding previously recorded losses, medical expenses, and other items have special rules that only apply to the final return. There are also optional tax returns that may be filed.
The Estate
If a person holds a portfolio of stocks, bonds, and other investments, these continue to earn income after the person has passed. The income from the date of death and onward are reported on the Estate return.
There are other concerns such as renting out the former house of the deceased, selling a vacation cottage, and others that all have to be taken into account when preparing the Estate return.
KMA is able to help identify what needs to be reported as part of the Estate returns and the process for winding up the estate.
Clearance Certificate
Once all the tax returns have been filed, and amounts owing are paid, CRA can issue a final “clearance certificates”. There are two different certificates available: one for the final return and one for the Estate.
Executors should obtain these certificates to remove the possibility of the Canada Revenue Agency seeking any further tax from the Executor of the Estate.
KMA can ensure that all of the requirements to obtain these certificates have been completed and help the executor with the applications.
Other Estate Concerns
There are some special tax rules that apply whenever there is a beneficiary of the estate that does not live in Canada. KMA helps a number of estates each year with these tax matters.
When dealing with a non-resident beneficiary, special certificates are required to be obtained prior to any payments to these individuals. Ignoring these rules can leave the executor of the estate open to the possibility of significant personal tax liability.