It’s tax season. That wonderful time of year for number crunching, hunting for receipts and depending on your situation, hair pulling.
If you are an executor of the estate of a deceased person, you also have the responsibility of filing the deceased’s "final return." To borrow from a popular expression, the two certainties, death and taxes, follow each other. Final tax returns for those who die during the period from January 1 to October 31 are due April 30 of the following year.*
While there are no inheritance taxes in Canada there are a number of taxes that arise as a result of your death and must be included in the final return. Some of those taxes include the following:
Capital Gains Tax. For the purpose of calculating tax, the CRA deems a deceased to have disposed of all her capital property immediately before her death. This is referred to as a “deemed disposition.“ Depending on the deemed proceeds of disposition, there may be a capital gain or loss. Certain types of capital property are exempt from this rule and an expert should be consulted for specific advice.
RRSPs and RRIFs. These tax sheltered investment vehicles lose their status as such at death. When you die, the tax holiday ends and your RRSPs and RRIFs are collapsed. There is a deemed sale of any securities held in the RRSP or RRIF and any income made in the year preceding your death must be included in the final return. There are a few notable exceptions to this rule, such as a spousal rollover and transfers of your plan to minor and/or mentally infirm children.
There are many creative ways of reducing the taxes that surface after your death. The benefits of doing so may be substantial and result in considerable savings for your estate. When you consider the fact that you spend a lifetime building your assets, speaking to a profession about your estate is advisable. Your beneficiaries will thank you.
*For more information on how to file a final return, visit the Canada Revenue Agency’s website