Can You Amend a Final Return After It Has Been Filed in Canada?

You filed the final return for someone who died, and then a late T5 arrives, a receipt turns up, or an accountant spots a credit that was missed. It is a common situation, and the question is whether the return can be corrected and what that might cost.

This article explains the kinds of things that are often missed, which of them can be handled through optional returns or elections, and why the timing matters before any money goes to beneficiaries. The way to ask the CRA for a change to a filed return depends on the facts, so it is worth confirming the exact route with the CRA or an accountant.

This article covers Canadian federal tax law, which applies in every province.

Why a filed final return is not always the end of the matter

The legal representative, usually the executor named in the will, is responsible for ensuring returns are filed and balances owing are resolved. That responsibility does not stop because a return has gone in. If you find an error or omission afterwards, the sensible step is to deal with it promptly rather than wait for the CRA to find it.

Whether and how a filed return can be changed depends on what you are correcting and on your situation. Ask the CRA or an accountant to confirm the right method before you send anything, and keep copies of what you submit.

What is commonly missed

• Income earned up to the date of death, even if it was received after death, which belongs on the final return unless it is filed on an optional return.
• Periodic amounts such as interest, rent, royalties and annuities not paid before death, which are treated as accruing daily up to the date of death.
• Medical expenses, which can cover any 24-month period that includes the date of death if they were not claimed elsewhere.
• Donations, which are limited to 100% of net income on line 23600 for the final return, with any excess claimable on the previous year's return up to 100% of that year's net income.
• Capital gains from the deemed sale of property at death, reported on Schedule 3 and line 12700.

Missed income usually increases the tax owing, while missed deductions or credits can reduce it. Either way, the corrected figures are worth gathering in one place before you contact the CRA.

Optional returns and elections that may help

Optional T1 returns are not required, and they may reduce or eliminate tax. The three types are rights or things (marked 70(2)), partner or proprietor (marked 150(4)), and income from a graduated rate estate (marked 104(23)(d)). They are only available for eligible income sources and time periods.

If rights or things were transferred to beneficiaries before the election period ended, the s. 70(2) election does not apply to them, and the beneficiary includes the amount in income when received. When claims are split between the final and optional returns, the total cannot be more than what would have been allowed on the final return alone.

Interest, penalties and relief

If a correction increases the balance owing, interest on unpaid amounts is compounded daily from the day after the due date until paid. The payment due date does not move with the later filing dates. Whether a particular correction triggers a penalty depends on the facts, so ask the CRA or an accountant.

For a late final return with a balance owing, the penalty is 5% of the balance plus 1% for each full month late, up to 12 months, and it may be higher if a late-filing penalty was assessed on the deceased's return for any of the 3 previous years. The CRA may cancel penalties or interest where a late filing was caused by circumstances beyond your control.

What to do next

Before distributing anything to beneficiaries, remember that the legal representative must obtain a clearance certificate, and distributing without one can make you personally liable up to the value distributed. A clearance certificate should only be requested once all returns are filed and assessed, amounts owing are paid or secured, and nothing is outstanding under adjustment, objection, relief or appeal. A pending correction therefore delays that step.

• List each missed slip, deduction or credit, with the amount and supporting document.
• Check whether any of it belongs on an optional return and whether its deadline is still open.
• Confirm with the CRA or an accountant how to request the change to the filed return.
• Pay any added tax owing as soon as you know the amount, to limit interest.
• Hold back estate distributions until the changes are assessed and the clearance certificate can be requested.
• Keep a record of every document you send and the date you sent it.

Frequently asked questions