Tax Returns for a Deceased Person in BC: What Is Required

When someone dies, the tax paperwork can feel like a long list of unfamiliar forms. Some returns are required, and what else might apply depends on the specific income and assets involved.

This article explains the required returns first, then the deadlines and penalties. How any other filing might apply depends on your situation, so it is worth confirming with an accountant or a lawyer.

This article covers the law of British Columbia.

Required returns come first

The legal representative must file the final return for the year of death, file any returns the deceased had not filed for earlier years, and file T3 returns if required. The final return reports all income from January 1 of the year of death up to the date of death. Anything beyond these depends on the facts, so it is worth confirming with an accountant.

The legal representative is typically the executor named in the will. If there is no will or executor, a person can be appointed through the courts, or can register with the CRA using Form RC552, although that approval is for CRA purposes only.

The legal representative must also notify the CRA of the death, confirm all CRA balances are resolved, and cancel or transfer benefit payments. To notify the CRA, you can call Individual Tax Enquiries at 1-800-959-8281 or Benefit Enquiries at 1-800-387-1193, or mail Form RC4111 to the deceased's tax centre. The CRA asks you to do this as soon as possible to avoid benefit repayment.

Income and assets that can affect the final return

Tax on death often arises through the deemed disposition rules. Under s. 70(5)(a) of the Income Tax Act, a taxpayer is deemed to have disposed of each capital property immediately before death for proceeds equal to its fair market value immediately before death. The CRA describes this as the deceased being considered to have sold all property just before death even though there is no actual sale. The gain is reported on Schedule 3, and the taxable portion goes into income on line 12700 of the final return.

An exception applies to a spouse or common-law partner rollover. Capital property that vests indefeasibly in a spouse or common-law partner resident in Canada within 36 months after death is deemed disposed of at adjusted cost base, so no gain arises on the final return. The legal representative can elect out of the automatic spousal rollover, property by property, in the final return.

An unmatured RRSP works differently. Its fair market value at death is included in the deceased's income for the year of death, unless it passes as a tax-deferred refund of premiums to a qualifying beneficiary. If all plan property goes directly to a spouse's or common-law partner's RRSP, RRIF, PRPP, SPP or eligible annuity before the end of the year after death, no T4RSP is issued in the deceased's name. Whether any other filing could apply to business or trust income depends on the facts. Ask an accountant to review the details before you decide.

Deadlines that apply to the final return

The later business date applies where the deceased, or a spouse or common-law partner living with them, was carrying on a business, and it is not available where expenditures were mainly the cost of tax shelter investments. Even with a June 15 filing date, any balance owing is still due on the regular payment date, and interest accrues from the day after.

Why timing and penalties matter

The late-filing penalty on the final return is 5% of the balance owing plus 1% of the balance for each full month the return is late, to a maximum of 12 months, with compound daily interest on unpaid amounts. The penalty may be higher if one was assessed on any of the 3 previous years, and the CRA may cancel penalties or interest where lateness was beyond the person's control.

A T3 return is due no later than 90 days after the trust's tax year-end, and a balance owing is also due within 90 days. An estate may not need to file a T3 if it is distributed immediately after death or earned no income before distribution. If you are unsure whether anything beyond the required returns applies, ask your accountant early, so that no deadline on the required returns is missed.

What to do next

• Confirm the date of death and the matching final return deadline
• List income the person was owed but had not received at death
• List any business or trust income
• Ask an accountant whether anything beyond the required returns applies
• Ask whether registered plans or capital gains also affect the final return
• Keep copies of everything filed

A lawyer can help with the estate side, such as your authority and clearance certificate, while an accountant handles the calculations.

The legal representative should apply for a clearance certificate on Form TX19 before distributing estate assets. If assets are distributed without one and tax is owing, the representative can be held personally liable for outstanding tax balances, up to the value of the assets distributed. The request should wait until required returns are filed and assessed, and the CRA sends an acknowledgement within 45 days, while the assessment can take up to 120 days.

Frequently asked questions