- An executor can file up to three optional returns on top of the final T1, and doing so can lower the total tax because each return starts again at the lowest brackets.
- The rights or things return is due by the later of one year after death and 90 days after the Notice of Assessment for the final return, but any tax owing is still due on the final return's date.
- Unpaid periodic amounts such as interest or rent are treated as accruing daily, with the part accrued to death going on the final return, though some listed items, like matured bond coupons not yet cashed, are rights or things.
When someone dies, the executor must file a final T1 return. Many people do not realize that the law also allows separate, optional returns for certain kinds of income. These are not extra paperwork for its own sake. Used well, they can spread the deceased's income over more than one return.
This article explains the three optional returns, what counts as rights or things, how to move those amounts to beneficiaries instead, and the deadlines and penalties that apply. The right choice depends on the estate's facts, so an accountant or lawyer can confirm what suits your situation.
The final return and the three optional returns
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. On top of that, the legal representative may be able to file optional returns.
- A return for rights or things, which the legal representative elects to file under ITA s. 70(2).
- A return for a partner or proprietor, where the business fiscal year does not end on December 31.
- A return for income from a graduated rate estate, usually shown on a T3 slip.
The legal representative is usually the executor named in the will. Dealing with CRA generally means sending a copy of the death certificate or a funeral director's statement of death, along with a complete copy of the will naming the executor.
What counts as rights or things
Rights or things are amounts that would have been income if the person had realized them during their life. The idea is income that was earned but not yet received at death. Capital gains are excluded.
- Salary, commissions and vacation pay for pay periods that ended before death but were paid after it.
- OAS and CPP or QPP for the month of death that are paid after death.
- Dividends declared before death but not received.
- Matured bond coupons that were not yet cashed.
- Under specific conditions, accounts receivable, inventory, crops and livestock.
Only income earned but not received before death qualifies. Whether a particular item fits, especially business items, is often a technical question worth confirming with an accountant.
Rights or things versus amounts accrued to death
It helps to compare rights or things with periodic amounts. Amounts paid periodically, such as interest, rent or annuity payments, that were not paid before death are treated as accruing in equal daily amounts. The part accrued up to the date of death goes on the deceased's return for the year of death.
So the part of an unpaid rent payment that accrued before death generally goes on the final return, while a declared but unpaid dividend can be a right or thing. The two categories can overlap, though: matured bond coupons not yet cashed, and OAS and CPP or QPP for the month of death paid after death, are listed as rights or things even though they are paid periodically. If you are unsure which category an item falls into, ask an accountant before you file.
Transferring rights or things to beneficiaries
There is an alternative to the separate return. If the legal representative transfers a right or thing to a beneficiary before the deadline for the s. 70(2) election, s. 70(2) does not apply to that item. The beneficiary then includes the amount in their own income when they receive it.
This can make sense when a beneficiary has low income, but it moves the tax to that person. The estate and the beneficiaries should understand who is taxed before anything is transferred.
Why file, deadlines and penalties
Filing optional returns can lower total tax. Certain credits and deductions can be claimed more than once or split between returns, and each return starts again at the lowest tax brackets.
| Return | Filing deadline |
|---|---|
| Rights or things | Later of one year after death and 90 days after the Notice of Assessment or Reassessment for the final return |
| Partner or proprietor | Follows the final return's filing date |
| Graduated rate estate income | Follows the final return's filing date |
For a death between January 1 and October 31, the final return is due April 30 of the following year, and for a death between November 1 and December 31 it is due 6 months after the death. If the deceased or a cohabiting spouse or common-law partner ran a business, the final return is instead due June 15 of the year after the death for deaths between January 1 and December 15, and 6 months after the death for deaths between December 16 and 31, although any balance owing must still be paid by the regular payment due date. This later filing date does not apply if the business's expenditures were mainly for tax shelter investments.
Any balance owing on the rights or things return is due on the same date as for the final return. A later filing date does not postpone payment.
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 until the balance is paid.
What to do next
- Confirm who the legal representative is and gather the death certificate and will.
- List income earned but unpaid at death, such as final pay, vacation pay and declared dividends.
- Check whether the deceased had a business or partnership with a fiscal year not ending December 31.
- Check for T3 income from another estate.
- Decide, with an accountant, whether to file separately or transfer items to beneficiaries.
- Mark the deadlines, including the payment date.
Because the choices affect the tax of both the deceased and beneficiaries, talk to an accountant or an estates lawyer before filing.
Frequently asked questions
Are optional returns mandatory?
No. The rights or things return is an election the legal representative makes, so it is a choice rather than a requirement. Whether it helps depends on the amounts involved, so it is worth running the numbers.
Can capital gains go on a rights or things return?
No. Capital gains are excluded from rights or things. Gains from the deemed sale of property at death are dealt with elsewhere, on the final return.
Does the later deadline mean I can pay later too?
No. The rights or things return has its own filing deadline, but any balance owing is due on the same date as for the final return. Interest is charged from the day after the due date.
What if I transfer the items to a beneficiary instead?
If the transfer happens before the s. 70(2) election deadline, that section does not apply to the item, and the beneficiary includes the amount in their own income when they receive it.
Sources
- CRA – What returns you need to file (someone who died) — canada.ca
- Income Tax Act, s. 70(1) (Justice Laws) — Justice Laws (federal)
- CRA – Filing and payment due dates (someone who died) — canada.ca
- CRA – Represent someone who died — canada.ca
Links go to official government, court and regulator pages. The law changes — confirm you are reading the current version.
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