Final Tax Return for a Deceased Person in Ontario: Who Files and When

As an estate trustee, one of your first duties is dealing with the deceased's taxes. Distributing property without a clearance certificate can leave you personally liable for unpaid amounts, up to the value of the property distributed.

This article explains who files, the deadlines, the optional extra returns, how RRSPs and RRIFs affect the final return, and how the clearance certificate protects you.

Who files and which returns

The deceased's legal representative must file a final T1 Income Tax and Benefit Return. A T3 return may also need to be filed for the estate. In Ontario the legal representative is usually the estate trustee, who holds the authority to manage the estate.

The estate trustee holds the deceased's property as trustee for the people legally entitled to it, after the deceased's debts are paid. How tax owing fits in with the other debts depends on the estate, so it is worth confirming with a lawyer or accountant before you distribute anything.

You should also notify the CRA of the death as soon as possible, by phone or by mailing Form RC4111, to avoid benefit repayments. Any CRA payment received after the death should be returned to the tax centre.

Separately from income tax, the estate trustee must file an Estate Information Return with the Ministry of Finance within 180 calendar days of receiving an estate certificate. This applies even if the estate's calculated value is $0.

Deadlines

For a business, the balance owing is still due on the normal payment date. If the person died early in the year, on or before the due date of the previous year's T1, and had not filed it, that return is due 6 months after the date of death.

Optional rights or things return and the estate T3

An optional rights or things return 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. The T3 return for the estate is due 90 days after the trust's tax year-end.

Whether an optional return helps depends on the assets involved, so it is worth asking an accountant.

RRSPs and RRIFs on the final return

The fair market value of an RRSP or RRIF at death must generally be included in the deceased's income for the year of death, on the final return. Because that can add a large amount to the final return, it is worth looking at early. Several exceptions apply, depending on who receives the money:

• Surviving spouse or common-law partner: amounts paid to them can be transferred on a tax-deferred basis. If the whole RRSP goes directly into the survivor's eligible plan, the survivor reports the payment and claims a deduction equal to the amount transferred.
• Estate named as beneficiary but the spouse inherits from the estate: the legal representative and the qualifying survivor can jointly file Form T2019 to treat all or part of the estate's RRSP payments as a refund of premiums received by the spouse.
• Child or grandchild who depended on the deceased because of a physical or mental impairment: they can receive a tax-deferred transfer. One who was dependent but not because of an impairment can only transfer the amount to a term annuity.

For refund-of-premiums transfers, the beneficiary must complete the transfer to an RRSP, RRIF, PRPP, SPP or eligible annuity in the year the refund is received or within 60 days after the end of that year. To transfer into an RRSP, the beneficiary must be 71 or younger at the end of the year of transfer. If an RRSP grows in value between the death and final distribution, the increase is generally included in the income of the beneficiary or the estate in the year it is received. How this works for your situation is worth confirming with an accountant.

The clearance certificate

Under subsection 159(2) of the Income Tax Act, a legal representative must obtain a clearance certificate before distributing property they control. Without one, they can be personally liable for unpaid amounts, but not for more than the value of the property distributed.

The certificate is requested on Form TX19, Asking for a Clearance Certificate, but only after the returns are filed and the notices of assessment received. The CRA says the assessment can take up to 120 days if all documents are provided. Processing times are targets and can change.

What to do next

Two government benefits are worth handling alongside the tax filings. CPP and OAS benefits must be cancelled when the beneficiary dies; they are payable for the month in which the death occurs, and payments issued after that month must be returned. For deaths on or after January 1, 2025, the CPP death benefit is a basic $2,500 plus a possible $2,500 top-up, up to $5,000 in total, but only if the deceased contributed to the CPP for at least one-third of the calendar years in their contributory period (minimum three years) or for 10 calendar years, and the executor should apply within 60 days of the date of death. If there is no estate or the executor does not apply, it may be paid to the person or institution paying the funeral expenses, the surviving spouse or common-law partner, or the next of kin, in that order. The top-up is not paid if the deceased had ever received a CPP or QPP disability benefit, post-retirement disability benefit or retirement pension, or if a surviving spouse or common-law partner is eligible for a survivor's pension.

• Notify the CRA of the death using Form RC4111 or by phone.
• Work out which deadline applies, based on the date of death and any business.
• Gather slips, statements and records of income to the date of death.
• File the final T1 and, if needed, the T3 for the estate.
• Cancel CPP and OAS; payments after the month of death must be returned.
• Wait for the notices of assessment, then request the clearance certificate on Form TX19.
• Hold back distributions until the certificate arrives, and get advice from a lawyer or accountant if anything is unclear.

Frequently asked questions