Optional Tax Returns After a Death in Ontario: Rights or Things

If you are the executor of someone who died in Ontario, you already know a final T1 return is needed. What many people do not realize is that CRA lets the legal representative file extra, optional returns in some situations. They are not a trick. They are a recognized way of splitting certain income across more than one return.

This article explains what the three optional returns are, what goes on each, why they can reduce tax, and the dates that apply. It does not repeat the general rules for the final return. Whether an optional return makes sense depends on the numbers, so a lawyer or accountant should confirm before you file.

How income is cut off at the date of death

The final T1 return reports income and property gains up to the date of death. Some income is earned over time and is not paid on a neat date. 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 return for the year of death.

So if the person was owed a few weeks of rent when they died, the days up to the date of death belong on the final return, even though the cheque arrives later. Income that does not fit that periodic pattern may fall into the next category: rights or things.

The three optional returns

The legal representative can choose to file any of the following, where they apply. Each is separate from the final return.

• Rights or things return: the legal representative can elect to report the value of rights or things on a separate return instead of the final return. Rights or things are amounts that would have been income if the person had realized them during their life.
• Partner or proprietor return: this applies when a deceased sole proprietor or partner has a business fiscal year that does not end on December 31. It reports business income from the end of the fiscal year to the date of death.
• Graduated rate estate income return: this reports income the deceased received from another person's graduated rate estate, usually shown on a T3 slip, between that estate's fiscal year-end and the date of death.

What counts as rights or things

Rights or things cover income that was earned but not received before death. Examples include 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 paid after death; dividends declared before death but not received; and matured bond coupons not yet cashed. Under specific conditions, accounts receivable, inventory, crops and livestock can also qualify. Capital gains are excluded.

Because only income earned but not received qualifies, the gain from the deemed sale of property at death does not move to this return. Those gains stay on the final return. Which items on a particular estate qualify can turn on detail, so confirm with an accountant.

Why optional returns can lower the 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. Without an optional return, all the income would be stacked on one return and pushed into higher brackets.

For 2026, the federal rate is 14% on taxable income up to $58,523 and rises to 20.5% above that. Ontario adds its own rates on top, starting at 5.05% up to $53,891. These are bracket rates only, and Ontario tax also includes a surtax and the Ontario Health Premium, so any estimate you make from them alone will be low. Brackets change each year, so use the rates for the year of death.

There is another route for rights or things. If the legal representative transfers a right or thing to a beneficiary before the election deadline, the rights-or-things election does not apply to it, and the beneficiary includes the amount in their own income when they receive it. That can be useful when a beneficiary has lower income than the estate would, but it is worth modelling first.

Deadlines, penalties and interest

The final return itself is due April 30 of the year after the death for a death between January 1 and October 31, and six months after the death for a death between November 1 and December 31. If the deceased or their 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 six months after the death for deaths between December 16 and 31. 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 a return is late, the 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

• Get the date of death and the final return's due date confirmed first, since the optional returns follow from it.
• List unpaid pay, vacation pay, benefits for the month of death, declared dividends and uncashed coupons.
• Check whether the person was a sole proprietor or partner with a fiscal year-end other than December 31.
• Look for T3 slips from another person's estate that cover a period ending before death.
• Ask an accountant to compare total tax with and without each optional return.
• Decide whether any rights or things should be transferred to a beneficiary before the deadline.
• Diarize the deadlines and pay any balance owing on time to limit interest.

Because the choices interact with the rest of the estate's tax planning, a lawyer or accountant can confirm which returns suit your situation before you elect.

Frequently asked questions