What Taxes Does an Estate Pay After a Death in British Columbia?

Being an executor often means dealing with several kinds of tax at once. Some belong to the deceased person's last year of life, some belong to the estate after death, and some are specific to British Columbia.

This article gives an overview of the main ones and who generally deals with each. It is not a full checklist. Details such as GST/HST on a deceased person's business or property taxes owing on a home depend on the facts, so confirm those with a lawyer or accountant.

This article covers the law of British Columbia.

The final return

The legal representative must file the final return for the year of death, any returns the deceased had not filed for earlier years, and T3 returns if required. The final return reports all of the deceased's income from January 1 of the year of death up to the date of death.

Capital property is treated as sold immediately before death at fair market value, and the gain is reported on Schedule 3. Registered plans such as an RRSP or RRIF are generally included in income unless a rollover applies. Spousal rollovers can defer the tax.

T3 returns for the estate

Income earned by the estate after death may have to be reported on a T3 Trust Income Tax and Information Return. A T3 is due no later than 90 days after the trust's tax year-end, and a balance owing is also due within 90 days.

An income-receiving trust must file if it has total income of more than $500, income of more than $100 allocated to a single beneficiary, a capital distribution to a beneficiary, or income allocated to a non-resident beneficiary. An estate may not need to file if it is distributed immediately after death or earned no income before distribution.

A graduated rate estate (GRE) arises on death, exists no more than 36 months after the death, and designates itself as the GRE on its T3. A GRE may use a non-calendar year-end, while most other trusts have a December 31 year-end. Missing a required T3 can lead to penalties and interest.

Probate fees and other British Columbia items

• Probate fees: none if the estate does not exceed $25,000; above that, $6 per $1,000 or part over $25,000 plus $14 per $1,000 or part over $50,000.
• Property transfer tax: a transfer to a personal representative, where the property is part of the estate, is exempt under exemption 09. A principal residence passed from the trustee to a related beneficiary can be exempt under exemption 40 if conditions are met, including that the beneficiary is a Canadian citizen or permanent resident. Exemption 40 may not be a full exemption if the property exceeds 0.5 hectares or is not residential.
• Survivorship: exemption 08 covers a transfer to the survivor of a joint tenancy, but not the additional property transfer tax.
• Speculation and vacancy tax: owners at the time of death are exempt in the year of death and the next calendar year, and the person managing the estate is also exempt.

If an heir does not meet the conditions for an exemption, property transfer tax may apply, so confirm the position before transferring title.

Clearance certificates and personal liability

A clearance certificate confirms the estate has paid the income tax and GST/HST, interest and penalties it owed, or that the Minister has accepted security. It is requested on Form TX19. If assets are distributed without one and tax is owing, the representative can be held personally liable, up to the value of the assets distributed.

Wait until required returns are filed and assessed. The CRA sends an acknowledgement within 45 days, and the assessment can take up to 120 days. If there was a GST/HST account, Form GST352 must be completed with Form TX19, and a separate certificate is needed for any trust.

What to do next

• Notify the CRA of the death as soon as possible, by phone or by mailing Form RC4111, and list all returns that must be filed.
• Gather the will, a list of assets at death and records of any distributions.
• Hold back distributions until you have discussed a clearance certificate with your lawyer or accountant.
• Ask an accountant about GST/HST and property taxes, since those depend on the facts.

Frequently asked questions