Rights or Things Returns in Ontario: Can a Separate Return Cut Tax at Death?

When someone dies, the estate trustee usually thinks first about the final T1 return. Fewer people know that Canada's tax rules let the trustee file extra, optional returns for the same person. Used well, these can spread income across more than one return, so less of it is taxed at the higher rates.

This article walks through what counts as rights or things, how the transfer to a beneficiary works, the two other optional returns, and the deadlines and penalties. It is general information for Ontario estates. Whether an optional return helps depends on the numbers, so an accountant or lawyer should confirm before you file.

What are rights or things?

Under the Income Tax Act, s. 70(2), 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.

Only income that was earned but not received before death qualifies, and capital gains are excluded. Common examples include:

• Salary, commissions and vacation pay for pay periods that ended before death but were paid after it.
• OAS and CPP/QPP for the month of death paid after death.
• Dividends declared before death but not received.
• Matured bond coupons not yet cashed.
• Under specific conditions, accounts receivable, inventory, crops and livestock.

Rights or things versus accrued periodic amounts

Do not confuse rights or things with periodic amounts such as interest, rent or annuity payments that were not paid before death. Under s. 70(1), those are deemed to accrue in equal daily amounts, and the part accrued up to the date of death goes on the deceased's return for the year of death. That rule is automatic, while the rights or things return is an election.

Transferring a right or thing to a beneficiary

Under s. 70(3), if the legal representative transfers a right or thing to a beneficiary before the s. 70(2) election deadline, s. 70(2) does not apply to it. The beneficiary includes the amount in their own income when they receive it.

This means there are three possible routes: keep the amount on the final return, elect to report it on a separate return for the deceased, or transfer it so the beneficiary includes it in their own income. Which is better depends on each person's other income, so it is worth running both versions before the trustee transfers anything.

The other two optional returns

• Partner or proprietor return: for a deceased sole proprietor or partner whose business fiscal year does not end on December 31. It reports business income from the end of the fiscal year to the date of death.
• Income from a graduated rate estate: 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.

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.

Why separate returns can reduce tax

Tax rates rise with income. For 2026 the federal rates are 14% up to $58,523, 20.5% to $117,045, 26% to $181,440, 29% to $258,482 and 33% above that. Ontario adds 5.05% up to $53,891, 9.15% to $107,785, 11.16% to $150,000, 12.16% to $220,000 and 13.16% above that.

If a rights or things amount sits on its own return, it is taxed from the bottom of those brackets rather than stacked on top of the final return's income. Brackets are indexed every year, so use the rates for the year of death. Ontario income tax also includes a surtax and the Ontario Health Premium that are not in these bracket figures, so a simple combined-rate estimate will understate the tax.

Deadlines, penalties and what to do next

The rights or things return must be filed by the later of one year after the date of death and 90 days after CRA sends the Notice of Assessment or Reassessment for the final return. Any balance owing is due on the same date as for the final return. The partner or proprietor return and the graduated rate estate return follow the final return's filing and payment dates.

For the final return, a death between January 1 and October 31 means the return and balance are due April 30 of the next year. A death between November 1 and December 31 means six months after the death. 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.

Late filing brings a penalty of 5% of the balance owing plus 1% for each full month late, up to 12 months, and compound daily interest on unpaid amounts.

Before distributing, the trustee needs a clearance certificate. A representative who distributes without one is personally liable for unpaid amounts up to the value distributed. The request on Form TX19 comes after all returns are filed and assessed and the amounts are paid or secured, not at the same time as the returns.

• List income earned but unpaid at death, such as pay, vacation pay, declared dividends and coupons.
• Compare tax with and without a separate return before electing.
• Hold off transferring rights or things to beneficiaries until you have decided on the s. 70(2) election.
• Diarize the final return and rights or things deadlines.
• Apply for the clearance certificate only after the returns are assessed and the amounts owing are paid or secured, then distribute.

Frequently asked questions