Filing the Final T1 Return for a Deceased Person in Ontario

After a death, the estate trustee is generally responsible for filing the deceased person's last personal income tax return, known as the final T1. Missing the deadline can add penalties and interest on top of tax the estate already owes.

This article covers the key deadlines, the kinds of income that end up on the return, the optional extra returns, and the penalties for filing late. Every estate is different, so use it as a map and confirm the details for your situation.

Filing and payment deadlines

If the person died between January 1 and October 31, the final return is due April 30 of the year after death. If they died between November 1 and December 31, it is due six months after the date of death. The Income Tax Act sets out the same later-of rule for deaths after October.

If the deceased or their spouse or common-law partner carried on a business, the filing deadline is June 15 of the following year for a death between January 1 and December 15, and six months after death for a death between December 16 and 31. The later date does not apply where the business expenditures were mainly tax-shelter investment costs.

Any balance owing is due on the same date as the filing deadline for a death in that period. It must still be paid by the payment due date even if a later filing deadline applies, for example for a self-employed deceased person.

What income goes on the final return

The return covers income from January 1 to the date of death. Some items catch people by surprise, so check each of these:

• Unpaid periodic amounts such as interest, rent or remuneration that accrued before death are included in the year of death, treated as accruing in equal daily amounts to the date of death.
• Capital property is deemed to have been disposed of at fair market value immediately before death, and the person who acquires it is treated as acquiring it at that same value.
• Property passing to a spouse or common-law partner, or to a qualifying spousal trust, can be rolled over at the deceased's adjusted cost base if it vests indefeasibly in the recipient within 36 months after death, a period the Minister can extend.
• The value of an unmatured RRSP at death is included in income on the return for the year of death.
• Rights or things, meaning non-capital items the deceased held, are generally included in the final return unless the legal representative elects to file a separate return for them.

Whether a particular asset triggers tax, and how much, depends on the facts. An accountant or lawyer can confirm how these rules apply to a house, shares, or a business.

Optional returns

The estate trustee may be able to file extra returns, which can help split income across separate returns. These include a Return for Rights or Things, a Return for a Partner or Proprietor, and a Return for Income from a Graduated Rate Estate.

The Return for Rights or Things is due by the later of one year after the date of death or 90 days after the Notice of Assessment or Reassessment for the final return is sent. Tax on it is due by the same date as the final return, generally April 30.

The other two optional returns follow the same filing and payment dates as the final return, although the partner or proprietor return may have a later filing date if a business was operated.

Penalties and interest for filing late

The late-filing penalty on a final return is 5% of the balance owing plus 1% of the balance for each full month late, up to 12 months. It may be higher if a late-filing penalty was assessed for any of the 3 previous tax years. Interest is charged on the balance and on the penalty.

These penalties are based on the balance owing, so a return with no tax owing is generally less costly to file late. Even so, the clearance process described below depends on returns being filed, so late filing can hold up the whole estate.

A late T3 return for the estate itself may attract an alternative penalty of $25 a day for each day late, with a minimum of $100 and a maximum of $2,500, even if no balance is owing.

What to do next

• Write down the date of death and work out which deadline applies.
• Find out whether the deceased or their spouse or partner ran a business, since that changes the filing date but not the payment date.
• Gather prior returns, slips, and statements for RRSPs, investments and property.
• Ask an accountant whether any optional return makes sense for the estate.
• Pay any balance owing by the payment date, even if you need more time to file.
• Keep copies of every notice of assessment, as you will need them later when you ask CRA for a clearance certificate.

Frequently asked questions