A. Income Tax
The basic income tax filing obligations are:
- to file a return for any prior year to the current year where the deceased has not filed and tax is payable. The return must be filed within 6 months of the date of death;
- to file for the current year by the later of 6 months from the date of death or April 30th in the year following death; and
- to file a Trust Information Return within 90 days of the end of each fiscal period of the estate.
It is recommended that tax preparation consultants be contacted to assist with the preparation and filing of all tax returns.
Before final distribution of the estate, obtain a tax clearance certificate from the Canada Revenue Agency.
B. Beneficiary Obligations
Beneficiaries must include in their income for each year any portion of the income from the estate which is payable to them in the year. An amount is deemed to be payable if it is actually paid or if the beneficiary is entitled to enforce payment from the trust. The estate can deduct the amount payable so there will not be double taxation on the income.
C. Spouses and Spousal Trusts
The rules regarding the deemed realization of capital gains and recapture on death are modified when capital property owned by the deceased passes to a spouse or a spousal trust. The Income Tax Act s. 70(6) provides for a “rollover” of the cost base of the capital property from the deceased to the spouse or spousal trust, with taxes being deferred on the gain.
D. Farm Property
Section 70 of the Income Tax Act also contains “rollover” provisions for family farms, farm partnerships and shares in family farm corporations allowing for deferral of taxes on the deemed gain.