Rights or Things Return: Extra Tax Return for a Deceased in Ontario

Many people die owed money for work already done: wages, a bonus, vacation pay or a crop they grew but never sold. That money is income, and it can push the final tax return into higher brackets.

The tax system lets the legal representative, usually the executor, report some of that income on a separate return. This article explains what qualifies, how it can reduce tax, and what to watch for in Ontario.

What "rights or things" means

Rights or things are amounts that would have been income if the person had realized them during their life. The legal representative can elect to report their value on a separate return instead of the final return.

The final return is a T1 Income Tax and Benefit Return, which must be filed for every person who dies and reports income and property gains up to the date of death. The rights or things election lets some income be reported apart from it.

Examples include salary, commissions and vacation pay for pay periods that ended before death but were paid after it. They also include OAS and CPP/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 qualify too.

Only income earned but not received before death qualifies, and capital gains are excluded.

How a separate return can reduce 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. Income that would have been stacked on top of the final return is instead taxed from the bottom of the brackets on its own return.

Whether the savings are meaningful depends on how large the amounts are and what else is on the final return. An accountant can compare the tax with and without the election.

Different from other optional returns

• Rights or things return: unpaid income of the types described above.
• Partner or proprietor return: for a sole proprietor or partner whose business year does not end on December 31, reporting business income from year-end to the date of death.
• Graduated rate estate return: income the deceased received from another person's graduated rate estate, usually on a T3 slip, between that estate's year-end and the date of death.

The partner or proprietor return and the graduated rate estate return follow the final return's filing and payment dates, while the rights or things return has its own deadline.

If you pass the right or thing to a beneficiary

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. The beneficiary includes the amount in their own income when they receive it.

This means the order of events matters. Check with an accountant before distributing anything that might qualify.

Deadlines and next steps

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.

For a death between January 1 and October 31 inclusive, the final return and any balance owing are due April 30 of the year after the death. For a death between November 1 and December 31 inclusive, they are due 6 months after the death, on the same calendar day. Other dates can apply in special cases, such as when the deceased or a cohabiting spouse or common-law partner ran a business, so it is worth confirming with an accountant.

A 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.

• List unpaid pay, bonuses, vacation pay, dividends and any farm or business receivables.
• Do not transfer these items to beneficiaries until you have decided on the election.
• Confirm the final return deadline for the date of death.
• Have an accountant compare the tax with and without a separate return.
• Keep copies of everything filed.

Frequently asked questions