What Taxes Are Owed When Someone Dies in Ontario?

When someone dies, their income tax affairs do not simply stop. The executor, called an estate trustee in Ontario, should be careful about tax before handing out the estate, because distributing assets without a CRA clearance certificate while tax is owing can make the executor personally liable for the unpaid amounts, up to the value of the assets distributed.

This article covers the final return, the deemed disposition at death, the deadlines and the clearance certificate. Tax rules have many exceptions, so an accountant or lawyer should confirm how they apply to your estate.

The final return and deemed disposition

A person is deemed to have disposed of each capital property immediately before death at its fair market value, and any resulting capital gain is reported on the final return. This means tax may be owing even though nothing was actually sold.

For a principal residence, the designation applies only up to the date of death, and you cannot claim a capital loss on personal-use property.

When a rollover may apply

In some cases the deemed disposition is deferred. These are the main exceptions in plain terms:

• Spouse, common-law partner or spousal trust: property of a Canadian-resident deceased that passes to a spouse, common-law partner or qualifying spousal trust rolls over at cost, if it vests indefeasibly within 36 months after death. The representative may elect out.
• Farm or fishing property to a child: a rollover may apply to Canadian land and property used mainly in a farming or fishing business, if the child was resident in Canada at the death and the property vests in the child within 36 months.

Filing deadlines

Even where the filing date is extended for business income, any balance owing is still due by the regular date. Check the exact dates for your situation with an accountant.

Clearance certificates and personal liability

A legal representative who distributes estate assets without a CRA clearance certificate, requested on Form TX19, while tax is owing is personally liable for the unpaid amounts, up to the value of the assets distributed. For that reason many executors wait for the certificate before distributing.

Taxes are also only one kind of debt. Where an estate cannot pay all its debts, they are paid proportionately, and debts owed to the Crown rank alongside other debts. A personal representative who has given the required notices to creditors may distribute the estate and is not liable to a creditor whose claim they had no notice of.

What to do next

Estate Administration Tax is separate from income tax. An Estate Information Return must be filed within 180 calendar days after the estate certificate is issued, even if the estate is worth $0.

• Note the date of death, because it sets the filing deadline.
• Gather the deceased's tax slips, account statements and property records.
• List capital property and its value at death.
• Ask an accountant about rollovers and any business income.
• Request a clearance certificate before distributing assets.
• Keep records of every step you take as executor.

Frequently asked questions