- A final T1 return must be filed for every person who dies, and it reports income and property gains up to the date of death.
- Optional returns can lower the total tax because certain credits and deductions can be claimed more than once or split between returns.
- Refunds should be treated with care because the representative must deal with taxes and debts before distributing, and once a clearance certificate is issued, liability for unpaid tax rests on the estate, trust, corporation, beneficiaries or others who received the distributed assets, rather than on the representative.
You are an executor, and you expect CRA to send money back: an overpayment of tax, a credit, or a repaid benefit. You may be wondering how to claim it, who is entitled to it, and what to do when a cheque arrives in the deceased person's name.
The short answer is that a refund is possible, but it depends on what the returns show once everything is reported. This article explains where refunds usually come from and the steps that come first. It does not replace advice on your specific estate.
Where a refund can come from
A final T1 Income Tax and Benefit Return must be filed for every person who dies. It reports income and property gains up to the date of death. Whether it shows money back or tax owing turns on the figures reported on that return, so it is worth confirming the result with a lawyer or accountant. Whether that happens depends on the numbers on the return.
Death also creates income that surprises people. CRA treats the deceased as having sold all their property just before death, even if nothing was sold. That can push tax up rather than down, so do not assume a refund before the return is prepared.
- Net capital losses for the year of death and the year before can be deducted from income other than capital gains on the final return.
- If an RRIF or RRSP falls in value after death, the legal representative may be able to claim a deduction on the final return, generally if the final distribution happens by the end of the year after the death.
- A legal representative can elect to treat certain capital losses and terminal losses of a graduated rate estate as losses of the deceased for the final tax year.
Optional returns can change the result
Beyond the final return, the representative may be able to file optional returns. Filing them can lower total tax because certain credits and deductions can be claimed more than once or split between returns, and each return starts again at the lowest tax brackets.
| Return | What it reports |
|---|---|
| Rights or things return | Income earned but not received before death, such as unpaid salary or vacation pay, or OAS and CPP for the month of death paid after death |
| Partner or proprietor return | Business income from the fiscal year-end to the date of death, where the year does not end on December 31 |
| Graduated rate estate return | Income received from another person's graduated rate estate between its year-end and the date of death |
The rights or things return is due by the later of one year after the date of death and 90 days after CRA sends the Notice of Assessment or Reassessment for the final return. Whether an optional return is worth the effort is a calculation a lawyer or accountant can run.
Who deals with CRA, and who gets the money
The legal representative is usually the executor named in the will. To deal with CRA, the representative sends a copy of the death certificate or a funeral director's statement of death, and a complete copy of the will naming the executor. If there is no will or executor, Form RC552, Register as Representative for a Deceased Person, is used.
An estate trustee's duties include paying taxes, bills and other debts before distributing what is left. For that reason, a refund is generally best treated as part of the estate until the taxes and debts are known, rather than being paid out to a beneficiary right away. Who is ultimately entitled to it depends on the will or the rules that apply when there is no will, so confirm with a lawyer.
Benefit repayments and refund cheques
Whether a particular benefit must be repaid or is owed to the estate depends on the benefit and on the dates involved. OAS and CPP/QPP for the month of death that are paid after death are among the amounts that can be reported as rights or things. If you receive a notice about a benefit, read it carefully and ask a lawyer or accountant before you cash a cheque or return money.
How a cheque made out to the deceased can be deposited depends on the bank and on your authority as representative. Bring proof of your status, and keep a record of every cheque and what it was for.
What to do next
- Confirm your authority and give CRA the documents it asks for.
- File the final return by its deadline: April 30 of the following year for a death from January 1 to October 31, or six months after the death for a death from November 1 to December 31. If the deceased or a cohabiting spouse or common-law partner ran a business, the due date is instead June 15 of the year after the death for deaths from January 1 to December 15, or six months after the death for deaths from December 16 to 31. Any balance owing must still be paid by the regular payment due date, and the later filing date does not apply if the business's expenditures were mainly for tax shelter investments.
- Ask whether any optional return or loss election could reduce the tax.
- Hold refunds in the estate account until taxes and debts are clear.
- Do not distribute property until you have a clearance certificate, because a representative who distributes without one is personally liable for unpaid amounts up to the value distributed.
- Keep copies of every return, notice and cheque.
Frequently asked questions
Can I claim a refund before the final return is filed?
A final T1 return must be filed for every person who dies, and it reports income and property gains up to the date of death. Whether a refund arises depends on what that return shows, so it needs to be prepared first. Collect the income slips and records for the year of death before you start.
Is the refund paid to me or to the beneficiaries?
The representative handles the estate's dealings with CRA and must deal with taxes and debts before distributing. Who ultimately receives the money depends on the will, so confirm before paying anything out.
Will I always get money back?
No. A deemed sale of property at death can create tax owing rather than a refund. Losses, optional returns and deductions may reduce the tax.
What if I miss the filing deadline?
The late-filing penalty is 5% of any balance owing, plus 1% of the balance for each full month the return is late, up to 12 months. If a refund is due there is no balance, but file on time anyway.
Sources
- CRA – Taxable capital gains on property, investments, and belongings (someone who died) — canada.ca
- CRA – T3 Trust Guide — canada.ca
- CRA – Report RRIF income (someone who died) — canada.ca
- CRA – What returns you need to file (someone who died) — canada.ca
- Income Tax Act, s. 70(2) (Justice Laws) — Justice Laws (federal)
- CRA – Filing and payment due dates (someone who died) — canada.ca
- CRA – Represent someone who died — canada.ca
- Income Tax Act, s. 159(2) (Justice Laws) — Justice Laws (federal)
Links go to official government, court and regulator pages. The law changes — confirm you are reading the current version.
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