Late Final Tax Return for a Deceased Person: Penalties and Relief

If you are an executor (the CRA calls you the legal representative) and the deadline for the final tax return has already passed, you are not alone. Grief, a slow start on paperwork, missing records and delays in getting authority to act all push this task back.

This article explains how the due dates work, how late-filing penalties and interest are calculated, and how to ask the CRA to cancel or waive them. It is general information for Ontario estates, not advice on your particular situation.

Who files the final return and when it is due

The deceased's legal representative files the returns, and a final T1 return must be filed for every person who dies. The due date depends on when the death happened and whether a business was involved.

Even when the filing date is June 15 because of a business, any balance owing is still due on the regular payment date, generally April 30. That means interest can start running before the return is even due.

How late-filing penalties and interest work

The penalty on a late final return is 5% of the balance owing, plus 1% of the balance owing for each full month the return is late, up to a maximum of 12 months. The penalty is based on the balance owing, so a return that results in a refund or no tax generally does not attract this particular penalty. If you are unsure, a lawyer or accountant can confirm how it applies to your numbers.

Separately, the CRA charges compound daily interest on the unpaid amount from the day after the due date until it is paid. Interest keeps growing until the balance is paid, so paying the tax as soon as you can limit the cost even if the return itself is still being prepared.

• The penalty is a percentage of the balance owing, plus a further percentage for each full month late.
• The monthly add-on stops building after 12 months.
• Interest is charged daily, and it compounds.

Other returns that can be late

A final return is not always the only one. If the deceased did not file a T1 for any tax year before the year of death, those earlier returns must also be filed. Optional returns, such as a Rights or Things return, have their own deadline: the later of one year after death or 90 days after the Notice of Assessment or Reassessment for the final return is sent.

If the estate also has to file a T3 trust return, it is due no later than 90 days after the trust's tax year-end, and any balance owing is due by the same date. An alternative late-filing penalty of $25 per day late, with a minimum of $100 and a maximum of $2,500, may apply to a late T3 even if no balance is owing.

Asking the CRA to cancel or waive penalties and interest

The CRA can cancel or waive penalties and interest, but not the tax itself. Grounds include extraordinary circumstances (such as a death in the immediate family, serious illness or serious emotional or mental distress), CRA delays or errors, and financial hardship. Meeting the criteria does not guarantee relief.

Relief is limited to penalties for tax years or reporting periods that ended within the last 10 calendar years before the year of the request, and to interest built up within that window. A request can be made on Form RC4288 or online through My Account or Represent a Client, and the CRA aims to decide within 180 calendar days.

Because the person who died is the one whose return is late, explain in your request what happened to you as the legal representative and when. A clear timeline is usually more useful than a long story.

Do not distribute the estate without a clearance certificate

Before distributing property, a legal representative must obtain a clearance certificate from the Minister. If property is distributed without one, the legal representative is personally liable for the unpaid amounts, up to the value of the property distributed, and the Minister may assess at any time.

Ask for the certificate only after the returns are filed and assessed and the taxes are paid or secured; do not submit the request together with the returns. The CRA sends an acknowledgement within 45 days, and the assessment can take up to 120 days. A late return therefore delays when beneficiaries can safely be paid.

What to do next

• Confirm the date of death and work out which due date applies.
• Gather the deceased's slips, statements, prior-year returns and any business records.
• Check whether earlier years were also unfiled.
• File the final return as soon as it is ready and pay what you can to limit interest.
• Prepare a short timeline of events and apply for relief if your circumstances fit.
• Hold back distributions until you have a clearance certificate.

If the numbers are large, a business is involved or beneficiaries are pressing you for payment, speak with a lawyer or accountant before you proceed.

Frequently asked questions