Year-end can be a particularly difficult time for those who have lost a loved one during the year. But it’s important to see a tax specialist when someone in the family dies, to file any tax returns that may be outstanding on time, adjust prior-filed returns, and to claim specific tax benefits that can help to pay for end-of-life costs.
Filing deadlines. The final tax return, also known as the terminal return, must be received by CRA as follows:
- Death Occurred between January 1 to October 31: File by April 30.
- Death Occurred between November 1 to December 31: File within six months after date of death (May 1 to June 30). Note, however, that balances due for the surviving spouse, who may file at the same time, must be paid on or before April 30 to avoid interest charges.
- Death of a Self-employed Person: If death occurred between January 1 and December 15, file by June 15. If death occurred in the period December 16 to December 31, file six months after date of death (June 16 to June 30). Again, balances due for the surviving spouse, who may file at the same time, must be paid on or before April 30 to avoid interest charges.
Adjust Prior Returns for the Deceased: If there are outstanding returns for prior years for the deceased, the due dates above remain the same; however, Taxpayer Relief Provisions may be applied to late returns due within the last 10 years, or to amended returns previously filed in the prior 10 years, and to waive penalties and interest in hardship cases.
Special Privileges and Relief Options: Executors who are filing final returns may take advantage of two important special privileges for deceased taxpayers that will provide additional relief:
- Rights and Things Returns: These additional returns can be filed to claim personal amounts in full on each return – terminal and rights or things – and to split between returns and claim other benefits to the best advantage of the taxpayer on each return.
- Election to Defer Payment: Especially because of the deemed disposition rules for capital assets on the death of a taxpayer, it is possible that a large tax liability can occur on the death of a taxpayer. It is possible to roll over assets on a tax-free basis to a surviving spouse, and to maximize the use of previously unused tax losses. But if the final result of this astute tax filing on death is still a balance due, it is possible to postpone the tax payment until the asset is actually sold and money is received. Security for the amount owning may be posted by filing form T2075 Election to Defer Payment of Income Tax, Under Subsection 159(5) of the Income Tax Act by a Deceased Taxpayer’s Legal Representative or Trustee. Although interest will be charged by the CRA as it waits for its money, this option may provide much-needed relief when high-value, low-liquidity capital assets must be disposed of to pay taxes on deemed disposition.