How to File the Final Canadian Tax Return for Someone Who Died

Who has to file the final tax return after someone dies?

The deceased person's legal representative is responsible for dealing with their outstanding tax obligations. This is usually the executor named in a will, an estate administrator or, in Quebec, the liquidator.

The legal representative must make sure required returns are filed, amounts owing to the Canada Revenue Agency are dealt with and the estate's tax obligations are considered before assets are distributed.

The CRA's official deceased-person representation guide explains how to establish authority and obtain access to the deceased person's tax records.

What is the final T1 return?

The final return is the deceased person's last T1 Income Tax and Benefit Return. It covers the tax year from January 1 through the date of death.

The return reports taxable income earned before death and other amounts that the Income Tax Act treats as arising immediately before death, including certain deemed dispositions of property.

Use the T1 package for the year in which the person died and for the province or territory where they lived on the date of death.

When is the final return due?

For most deceased taxpayers, the deadline depends on the date of death.

If a due date falls on a Saturday, Sunday or public holiday recognized by the CRA, the CRA applies its next-business-day rule.

You can verify the current deadline rules through the CRA filing and payment deadline guidance.

What if the deceased or their spouse was self-employed?

A later filing deadline can apply when the deceased or their spouse or common-law partner who lived with them was operating a business at the date of death.

If death occurred from January 1 through December 15, the filing deadline is generally June 15 of the following year. If death occurred from December 16 through December 31, it is generally six months after death.

This extension does not apply where the business expenditures were mainly the cost or capital cost of tax shelter investments.

Importantly, the later filing deadline does not extend the payment deadline. Any balance owing is still due under the regular payment deadline that applies according to the date of death.

What income goes on the final return?

If you do not use an optional T1 return, report all taxable income earned up to the date of death on the final return, even when the money was actually received after death.

Depending on the person's circumstances, this can include:

• employment income;
• pension income, including applicable CPP, QPP and Old Age Security amounts;
• Employment Insurance benefits;
• interest and other investment income earned up to death;
• dividends;
• rental income;
• business or professional income;
• taxable capital gains;
• taxable amounts arising from registered plans or other investments;
• other income that became taxable before death.

The CRA's income and property reporting guide explains the treatment of the main income categories.

What happens to capital property when someone dies?

For Canadian income tax purposes, a person is generally considered to have disposed of capital property immediately before death at its fair market value, even though no actual sale occurred.

This rule can apply to real estate, investments, crypto-assets and personal property and can produce a capital gain or capital loss that must be considered on the final return.

Where property passes to a surviving spouse or common-law partner who is resident in Canada, or to certain qualifying trusts, a tax-deferred rollover may apply if the statutory requirements are met. This can postpone the gain or loss instead of recognizing it on the final return.

For capital property transferred to other beneficiaries, the deemed disposition generally occurs at fair market value immediately before death. The CRA provides detailed instructions in its capital gains at death guidance.

Should you file an optional T1 return?

Possibly. The CRA allows up to three optional T1 returns when the deceased had specific qualifying types of income.

These returns are not mandatory, but using them can reduce the deceased person's total tax because some deductions and credits can be claimed or allocated differently between the returns.

What is a Return for Rights or Things?

A Return for Rights or Things can report qualifying amounts that the deceased had earned or become entitled to before death but had not yet received.

Examples identified by the CRA include certain unpaid salary, commissions or vacation pay, retroactive salary adjustments, CPP or EI arrears and some business receivables or inventory.

Capital gains are not rights or things.

Use a separate T1 package and write 70(2) in the upper-right corner of page 1.

When is the Rights or Things return due?

The filing deadline is the later of:

• one year after the date of death; or
• 90 days after the CRA sends the Notice of Assessment or Reassessment for the final return.

The payment deadline for tax owing on this optional return is generally the same as the payment deadline for the final return. Special rules can allow part of the tax to be deferred where the required election and security are provided.

What is the Return for a Partner or Proprietor?

This optional return may be available if the deceased was a sole proprietor or partner and the business had a fiscal year-end other than December 31.

It can be used for qualifying business income for the period between the end of the business fiscal year and the date of death. Write 150(4) in the upper-right corner of page 1.

This return generally follows the filing and payment deadlines applicable to the final return.

What is the Return for Income from a Graduated Rate Estate?

This optional return applies in a narrower situation where the deceased received qualifying income from the Graduated Rate Estate of another deceased person between that estate's fiscal year-end and the individual's date of death.

The separate return is identified with 104(23)(d) and generally follows the final-return filing and payment dates.

Is the final T1 return the same as the estate tax return?

No. This is one of the most important distinctions in estate tax administration.

The final T1 belongs to the person who died and generally reports income earned up to death. A T3 Trust Income Tax and Information Return can be required for income, gains and other taxable amounts arising in the estate after death.

For example, if investments remain in the estate and earn interest after death, or estate property is later sold and produces a taxable gain, those post-death amounts may belong on the T3 rather than the deceased person's final T1.

The CRA states that a T3 may not be necessary where an estate is distributed immediately after death and earns no income before distribution. Whether a T3 is required depends on the estate's actual transactions and income.

When is an estate T3 return due?

A T3 return and any balance owing are generally due 90 days after the trust's tax year-end.

For a Graduated Rate Estate that ceases to exist, the tax year normally ends on the final distribution date and the final T3 and balance owing are due no later than 90 days after that date.

What is a Graduated Rate Estate?

A Graduated Rate Estate, commonly called a GRE, is an estate that arose as a consequence of an individual's death and meets the conditions in the Income Tax Act.

Among the requirements, the estate can remain a GRE for no more than 36 months after death, must be a testamentary trust, must provide the deceased individual's SIN in its required T3 returns and must designate itself as the individual's GRE. No other estate can make the same GRE designation for that individual.

GRE status can affect tax rates, year-end choices and certain loss and charitable donation rules.

How do you get access to the deceased person's CRA tax records?

The CRA requires evidence that you are entitled to act for the deceased taxpayer.

For representation access, the CRA currently asks for:

• a copy of the death certificate or funeral director's statement of death;
• a legal document naming the executor or liquidator, such as the will, grant of probate or letters of administration;
• an updated estate mailing address if it changed after death;
• the deceased person's SIN on the submitted documents.

If there is no will or other legal document appointing an executor, Form RC552, Register as Representative for a Deceased Person, may be used to request CRA representation authority.

Online tax-record access is available to an authorized representative through the CRA's Represent a Client system, but this should not be confused with filing the final T1 return online yourself.

Can the legal representative file the final return online?

Not directly through ordinary consumer tax software. The CRA currently states that online tax software programs do not support submission of final or optional T1 returns by a legal representative filing the returns themselves.

If you prepare the return yourself, mail the return to the appropriate CRA tax centre.

Authorized tax preparation service providers, such as accountants with EFILE access, can electronically file eligible deceased-person T1 returns.

See the CRA's official final-return filing instructions before submitting the return.

How should the final return be labelled?

When preparing the return, the CRA instructs the legal representative to:

• enter the deceased person's identification information;
• write "The Estate of the Late" before the deceased person's name;
• use the legal representative's address as the mailing address;
• use the province or territory where the deceased lived on the date of death;
• enter the deceased person's marital status at death;
• enter the date of death;
• sign the return and state the representative's title, such as executor or administrator.

Can you file the final return before the current tax forms are available?

Yes. The CRA permits a legal representative to file early when the tax package for the year of death has not yet been released.

Use the most recent available return and write the tax year being filed at the top. The CRA will generally assess it using the latest available tax rules. A reassessment can later be requested when the rules for the year of death are available.

What happens if the final return is late?

If the final return is late and there is a balance owing, the CRA's standard late-filing penalty is 5 percent of the balance owing plus 1 percent for each full month the return is late, up to 12 months.

A higher penalty can apply if the CRA assessed a late-filing penalty for the deceased person in any of the previous three tax years.

Compound daily interest also applies to unpaid tax after the payment deadline. Even if the estate cannot pay immediately, filing on time can avoid the ordinary late-filing penalty.

Should you get a CRA clearance certificate before distributing the estate?

The CRA advises legal representatives to consider obtaining a clearance certificate before distributing estate property.

A clearance certificate confirms that amounts for which the legal representative can reasonably be expected to be liable have been paid or that acceptable security has been provided. Distributing estate property without dealing with outstanding CRA liabilities can expose the legal representative to personal liability for unpaid tax.

The current application uses Form TX19, Asking for a Clearance Certificate.

Common mistakes to avoid

• Reporting income received after death automatically on the estate's T3 without checking when the income was actually earned.
• Failing to account for a deemed disposition of capital property immediately before death.
• Assuming every transfer of property at death is immediately taxable without checking whether a spouse or common-law partner rollover applies.
• Missing an optional Rights or Things return that could reduce the overall tax burden.
• Putting post-death estate income on the deceased person's final T1 instead of determining whether a T3 is required.
• Using the ordinary April 30 deadline without checking the actual date of death.
• Assuming a self-employment filing extension also extends the deadline to pay tax.
• Trying to NETFILE a self-prepared deceased-person final return through ordinary consumer software.
• Distributing all estate assets before dealing with outstanding CRA balances and considering a clearance certificate.