March 2, 2010

Under the Income Tax Act, it is the responsibility of the legal representative (such as an estate trustee, or the administrator of the estate if probate is not required) to file all required returns for the deceased on a timely basis, pay all tax owing, and advise the beneficiaries whether the amount they receive from the estate is taxable. The legal representative may be responsible for filing up to four returns in the year of death, in addition to any returns not filed for previous years.

The liability of the legal representative requires that this duty is completed in a prudent manner. To the extent that assets have been distributed and taxes owed and there are insufficient assets left in the estate, the legal representative is personally liable for any shortfall and for any interest and penalties incurred, with such liability not exceeding the value of property distributed by the legal representative. Because of this, it is prudent for the legal representative to hold back a sufficient portion of the estate funds until a final clearance certificate has been received from Canada Revenue Agency (“CRA”).

This paper is intended to provide a general overview of the preparation of the tax returns to be filed on behalf of the deceased taxpayer and the estate. While it deals with a number of comprehensive issues, it is not an exhaustive reference list.

Topics covered in this paper include, among others: duties of the estate trustee, types of tax returns to be filed, tax filing deadlines, sources of income, tax treatment of RRSPs and RRIFs, and taxation of trusts.

Read the full paper here: Filing Estate Tax Returns.