The executor’s tax filing responsibilities
The timely and accurate completion of these returns is often the most difficult duty executors must face. There are three potential “taxpayers” for whom returns must be filed and taxes paid. They are the deceased, the estate, and any trusts created established in the will.
The returns that may need to be prepared include the following:
1 ) The terminal tax return. This covers the period from January 1 in the year of death up to the date of death. Usually, this will be one of the executor’s earliest tasks. Some of the issues that apply to this return include:
deemed disposition of capital property
collapsing or transferring registered plans
accrued income to date of death
income elections to reduce or defer tax
Depending on the type of income, it may be reported on several different types of tax returns. This presents an opportunity to save the estate money by using tax credits several times, and dividing the income across multiple returns, thus attracting a lower marginal tax rate.
2) The “Rights and Things” return. This return will allow f the additional use of basic tax credits, and will include such items as:
declared, unpaid dividends
matured, uncashed coupons
salaries or wages owing but unpaid for a pay period ending prior to death
retroactive salary and wage adjustments, including accrued vacation pay
commissions earned and payable but unpaid before death
CPP and OAS payments for the month of death (excluding the CPP death benefit)
unharvested farm crops
a partner’s share of partnership income for the partnership’s current taxation year (assuming the partner’s death did not trigger a deemed partnership year end).
An owner-manager’s unpaid bonus
An owner-manager’s retiring allowance, still to be received at the time of death
3) The tax return for the prior year. If the prior year’s return has yet to be filed, that return will need to be prepared, along with the terminal return.
4) The business income return. If the deceased had an interest in a partnership or operated a proprietorship, a separate return can be filed for business income up to the date of death.
5) The annual returns for any trust(s) established in the deceased’s will. Careful use of these returns present valuable opportunities to minimize taxes.
6) The estate return. All income earned by the estate after the date of death must be reported on a separate tax return.
Finally, one of the executor’s last activities will be to request clearance certificates from Canada Customs and Revenue (CCRA). These will be forthcoming after all tax returns for the deceased and the estate have been assessed, and all taxes owing are paid. Only then can the executor be fully discharged from their responsibilities for the estate.