Final T1 Return for Someone Who Died in Ontario: Deadlines

When someone dies, their last personal tax return, often called the terminal or final return, still has to be filed. The legal representative, usually the executor named in the will, is the person who deals with CRA for the estate.

This article explains the deadlines, what goes on the return, which optional returns may help, and what happens if you file late. The right answer for a given estate depends on the facts, so it also flags when to get help.

Who files and what the final return covers

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.

The legal representative is usually the executor named in the will, and balances owing to CRA are paid out of the estate's assets. 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.

Filing deadlines

The June 15 date is only a filing date. 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.

If the person died before filing the previous year's return, that return is due 6 months after the date of death, or the normal due date if later. A surviving spouse or common-law partner's own return is due on the later of their normal due date and 6 months after the death, but any balance owing must still be paid by April 30 to avoid interest.

What income to include

CRA treats the deceased as having sold all their property just before death, even if nothing was sold. That includes real estate, investments and personal belongings. The deemed proceeds are fair market value. Only half of a capital gain is taxable.

• Periodic amounts such as interest, rent or annuity payments are treated as accruing daily, and the part up to the date of death goes on the final return.
• The full value of an unmatured RRSP is included in income on the final return. Exceptions include RRSP property going directly to a surviving spouse or common-law partner's plan in the ways CRA allows, and payments rolling over to an RDSP for a child or grandchild who was financially dependent on the deceased because of a physical or mental impairment.
• A TFSA is not reported as income on the final return.
• Property passing to a spouse, common-law partner or qualifying spousal trust generally rolls over at the deceased's adjusted cost base, though the representative can elect out for a given property.
• A home must still be designated as a principal residence on the final return, using Schedule 3 and Form T1255, even if the designation exempts the whole gain. If the home passes to a surviving spouse or common-law partner, no designation for the period before death has to be reported.

Rental or business buildings can trigger recapture of capital cost allowance or a terminal loss. Because these rules interact, an accountant is often worth consulting on larger estates.

Optional returns that may reduce tax

Filing optional returns 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. The main ones are:

• Rights or things: amounts that would have been income if realized during life, such as unpaid salary or vacation pay, reported on a separate return. It is due by the later of one year after death and 90 days after the Notice of Assessment for the final return.
• Partner or proprietor: for a business whose fiscal year does not end on December 31.
• Graduated rate estate income: income received from another person's graduated rate estate between its year-end and the date of death.

Late filing and what to do next

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. CRA also charges compound daily interest on unpaid amounts from the day after the due date.

• Note the date of death and work out which deadline applies.
• Send CRA the death certificate and will, or file Form RC552 if there is no executor.
• Collect slips, statements and property values as of the date of death.
• Ask whether optional returns or elections apply.
• Remember the final return is separate from any later T3 return for the estate, and a clearance certificate comes after assessment.
• Speak with an accountant or lawyer if the estate has a business, rental property or large investments.

Frequently asked questions