What Income Goes on a Final Return Up to Death in Canada?

The final return covers the period from January 1 of the year of death up to the date of death. Executors often wonder what counts as income for that period when payments arrive after the person has died.

This article explains the general approach, how accrued amounts are treated, and where later income is reported. Your own facts can change the answer, so confirm details with an accountant or lawyer.

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

The basic rule

Income earned up to the date of death goes on the final return even if it is received after death, unless it is filed on an optional return. Income the estate earns after death is a different matter and is reported separately.

Information slips such as the T4, T5, T4A(P) and T4(OAS) help you find what was paid.

If the person died between January 1 and October 31, the final return and any balance owing are due April 30 of the year following the death. If the person died between November 1 and December 31, the final return is due 6 months after the date of death, on the same calendar day. The payment date for a balance owing does not move with the later filing dates, so you may need to pay before filing to avoid interest.

Interest, rent and other periodic amounts

Periodic amounts such as interest, rent, royalties and annuities that were not paid before death are treated as accruing daily up to the date of death. The part accruing to death is included in the deceased's income for the year of death.

In plain terms, you prorate by day: the portion that built up before death goes on the final return, and the rest belongs to the period after death.

Pensions, RRSPs and RRIFs

• RRIF payments before death go on line 11500 (age 65 or older) or line 13000.
• For an unmatured RRSP, the deceased is treated as receiving the fair market value of all plan property just before death, and the T4RSP box 34 amount goes on line 12900.
• For a RRIF, the fair market value is included unless the spousal conditions are met.
• If all RRSP property is transferred directly to the survivor's registered plan or an eligible annuity before the end of the year after death, no T4RSP is issued in the deceased's name.

A CPP or OAS payment for the month of death can be reported on the final return or an optional return.

Income reported elsewhere

Rights or things include salary and vacation pay for a pay period ended before death and paid after, and dividends declared before death but not received. Capital gains are not rights or things. Reporting them separately can save tax by letting certain credits be claimed again.

The legal representative can elect to report rights or things on a separate return by the later of one year after death and 90 days after the notice of assessment for the year of death. If rights or things are transferred or distributed to beneficiaries before the election period ends, s. 70(2) does not apply to them, and the beneficiary includes the amount in income when received.

A T3 return is needed if the estate earns income after death or distributes property to beneficiaries, and it is generally due 90 days after the trust's tax year-end.

What to do next

• Collect all T-slips and statements for the year of death.
• Ask banks and payers for interest accrued to the date of death.
• List income paid after death that relates to the period before it.
• Decide whether optional returns may reduce tax.
• Confirm whether the estate needs a T3 return.

An accountant can help with proration and with choosing between the final return and optional returns.

Frequently asked questions