Issues in Estate Administration: Tax Filing – Hull on Estate and Succession Planning Podcast #110
Listen to Issues in Estate Administration: Tax Filing.
This week on Hull on Estate and Succession Planning, Ian and Suzana discuss tax issues surrounding the administration of an estate.
Issues in Estate Administration: Tax Filing – Hull on Estate and Succession Planning Podcast #110
Suzana Popovic-Montag: Hi, and welcome to Hull on Estate and Succession Planning. You’re listening to Episode #110 of our podcast on Tuesday, April 29th, 2008.
Welcome to Hull on Estate and Succession Planning, a series of podcasts hosted by
Ian Hull and Suzana Popovic-Montag, that will provide information and insights into estate planning in Canada, from the offices of Hull Estate Mediation in Toronto, Ontario, Canada. Here are Ian and Suzana.
Suzana Popovic-Montag: Hi it’s Suzana Popovic-Montag.
Ian Hull: Ian Hull.
Suzana Popovic-Montag: And welcome to our podcast. We would just like to take this opportunity at the very beginning to remind you of the fact that we have a call in number for any of our listeners who have any comments on our podcast. Please feel free to call us at 206-457-1985.
Ian Hull: And also I encourage you to send us an e-mail at email@example.com or check out or daily blog which is easily found from our webpage at hullandhull.com. Well let’s start working through some issues on the estate administration.
Suzana Popovic-Montag: That’s great Ian, we shall, but I just wanted to take a quick opportunity to let our listeners know that by the time this podcast is up, you will have done yet another appearance on a great show that’s called “Strictly Legal”, that is hosted by Michael Cochrane and for people who are interested in hearing Ian speak about issues of Estate and Trust matters in a more general all encompassing fashion, I highly recommend you to that show.
Ian Hull: Well thanks Suzana, its fun, it’s a great show. I’m looking forward to it. It’s thrown up on a video stream after on Business News Network, BNN Network so, it’s good fun.
Suzana Popovic-Montag: Good for you Ian.
Ian Hull: Alright, so where we left off in our last podcast was we were still struggling through some tax stuff because it is tax time here in Canada. So we get a little focused on that and the easiest, I find, with files, the easiest criticism of any executor administering an estate is that they botched the tax filings or did any of the tax related stuff and so let’s talk a little bit about that. But also let’s talk about the fact that, you know, again, if you’re not the expert in the tax side of things, get help.
Suzana Popovic-Montag: That’s for sure.
Ian Hull: So we mentioned the T1 terminal income tax return which is due and then we talked a little about how you dovetail in an interim distribution encouraging the party, the executors, I try to encourage my client, the executors. to get the money flowing as quickly as possible, knowing the restrictions that are out there, because there are some, we can’t just simply send it out. But as soon as is safe, send it out with sufficient holdback. One of the reasons for the holdback is, of course, we have to pay taxes.
Suzana Popovic-Montag: And in addition to the T1 terminal return an estate trustee is going to prepare annually a T3 estate tax return.
Ian Hull: And that’s on estates that are not immediately distributable, so that if the assets are generating income, or there is a trust that is ongoing, or you just didn’t get it filed, the estate administered in the first year, Revenue Canada still wants their tax money on those, on the interest income or the growth and so forth. So our annual T3 estate return needs to be filed, and that is approximately, again you can expect a Notice of Assessment approximately six to nine months after that.
Suzana Popovic-Montag: One of the other things that we suggest to our clients to keep in mind after these tax returns have been taken care of, is to consider and to confirm that all CPP death benefits, that’s the Canada Pension Plan death benefits, have in fact been received on behalf of the estate.
Ian Hull: And also here in Ontario, we are forced to consider the issue of additional estate administration tax being paid. And on this point, I was in Court the other day, not a case that I was involved with, but I was watching and I noticed that there was some argument between the government of Ontario and a big, it looked like a big estate, I didn’t follow all the details, but they were arguing over a refund. The estate had, in fact, filed, and it turned out they had overpaid, they just basically overestimated the value of a big, big property, paid tax on it, the administration tax on it and then were now going back to the Court to work out a mechanism to get a repayment. So, as is in life, possession is nine- tenths of the law. It reminded me of the adage that, you know, its always better to be conservative when you are making the filings, on the estate administration tax side because it can be more difficult to get the money back than it can be to pay the money. But obviously always being honest throughout the process.
Suzana Popovic-Montag: That’s good advice, Ian.
Ian Hull: I think really at this point, I just want to take a deep breath and look back at what we are doing because, and this is where some clients, we meet some resistance from clients because they sort of see us as trying to cover off too much sometimes. But I really, I often at this point will sit down and prepare a comprehensive reporting letter. From our standpoint, for sure, we will report throughout. But this is a good time also for the beneficiaries to receive something in writing directly from the executor. There is nothing like personal contact, ongoing phone calls is a great idea as well. Just keeping people up to date, keeping the process personal. Because this is personal, this isn’t a business transaction, this is a life transaction. So I always encourage my clients who are executors to pick up the phone or grab a coffee with some of the beneficiaries or even have an informal meeting with them at the local coffee shop. But most importantly, I also suggest to them that they prepare a reporting letter.
Suzana Popovic-Montag: That is really good advice, Ian because it gives people then an opportunity to sort of see in writing all the hard work that you have done as an executor and the benefit of that, of course, being at the end of the day, when you want to seek compensation for your work as an estate trustee, you will have something to point the beneficiaries to in terms of the work and the hard effort that you have put forward in administering the estate.
Ian Hull: And it really is, it is not just self-serving, I think it is a natural reaction for people to, who feel that they are in the dark, no matter what you are dealing with, in business or, and in this case what is often a family situation. Dialogue and communication is so crucial and so the more, the better.
Suzana Popovic-Montag: And then just sort of to wrap up the tax discussion that we had we want to turn our minds to the final income tax return and the preparation of that final T3, and then, of course, applying for the final Clearance Certificate in order to give the sort of seal of approval to all the tax filings that have been done to the estate trustee on behalf of the estate.
Ian Hull: Okay, so let’s talk this through a little bit because this is really the final bell for the tax filings, and this final T3 return and the final Clearance Certificate application is so important. Again, I typically will tell my clients unless they are the tax experts that I am not, make sure you send everything to the accountant. This is the last chance to have sent all of the paper that you think might possibly relate to any of the assets of the estate to the accountant, let them decide what needs to be put to the taxing authority, not you.
Suzana Popovic-Montag: And then, of course, file the return, pay any taxes owing and just make note of the fact that you want to follow up the actual receipt of the Notice of Assessment for that final T3 return and typically that will come in about six to nine months.
Ian Hull: And then, of course, we have the second step and that is, of course, we will be looking for a Clearance Certificate. But one of the things that people talk about, and without getting overly technical on the tax side, is what do you do when you want to wind up an estate because interest is always going to be accumulating? And there is an easy answer, again not for my abilities to follow through on the mechanics, but the concept that: say there is a $100,000 left in the bank and you are holding that back to get your Clearance Certificate from CRA. You filed your final T3 return, everything is really ready to go but there is this one remaining amount of money that is being held back because the accountant said look, you know what, this is a busy account and this individual did a lot of transactions over his lifetime and CRA could always come back and look, and that final look at the Clearance Certificate time, because we have to remember CRA, that’s the last kick they are going to get at it too. So they typically take a pretty good, careful look at all of the tax activity of the deceased at that time. But what you can do is, you can allocate the interest income that is being accumulated on the stop date. So you, say you have some money left, you want to stop the estate, basically stop the clock running, so that you can indeed say it is over to Revenue Canada. The go forward income accumulation just gets allocated to the beneficiaries. And as I say, there are certain forms that get filed with the Revenue Canada and so forth to make that happen. But it is an important step to allow you to bring close to the ongoing treadmill of interest income that is going to be coming in on the money you are holding.
Suzana Popovic-Montag: And that is a really good point to address in the letter that you write to the beneficiaries reporting on the administration of the estate and reminding them that at that point, that stop clock date or whatever you want to call it, at that point forward they have an annual obligation to themselves report that income and pay tax on it.
Ian Hull: And so now we are looking for that Clearance Certificate. And even if that, as I say, the final distribution hasn’t been made, so you write a letter to CRA, you wait typically, it’s difficult to guess, it might be six to nine months, it might be more depending on the circumstances. And once you receive that final Clearance Certificate you can send out your final distribution.
Now one little twist, just as a final comment on the tax side is, is that you want also, I remind my clients to look at whether or not the deceased was a G.S.T. participant or registrant, because there can be special filings that need to be undertaken for that, and make sure that that’s been closed. So your loop is closed fully on the tax side, you’ve diarized them and then in our next podcast, we are going to talk a little bit about the accounting obligations, not from the standpoint of the government, which we have gone through, it’s going to be hopefully no more tax time once we get in our next podcast, we are going to move into the accounting obligation as between the executor and the beneficiaries.
Suzana Popovic-Montag: Well that is great, Ian. Thanks very much. I look forward to our next podcast. And just a reminder again for anyone who has any comments about our podcast, please feel free to call us at 206-457-1985 or send us an e-mail at firstname.lastname@example.org or, of course, visit our blog and our webpage at estatelaw.hullandhull.com.
Ian Hull: Thanks Suzana.
Suzana Popovic-Montag: Thanks Ian.
You’ve been listening to Hull on Estate and Succession Planning with Ian Hull and Suzana Popovic-Montag. The podcast you have been listening to has been provided as an information service. It is a summary of current legal issues in estates and estate planning. It is not legal advice and you are reminded to always talk with a legal professional regarding your specific circumstances.
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