Year-end tax planning: executor’s obligations

Executors are responsible for outstanding taxes

Year-end can be a particularly difficult time for those who have lost a loved one during the year. But it’s important to see a tax specialist when someone in the family dies, to file any tax returns that may be outstanding on time, adjust prior-filed returns, and to claim specific tax benefits that can help to pay for end-of-life costs. Here are some key deadlines to remember.

Filing deadlines

The final tax return, also known as the terminal return, must be received by CRA as follows:

Death occurred between Jan. 1 and Oct. 31: File by April 30.

Death occurred between Nov. 1 and Dec. 31: File within six months after date of death (May 1 to June 30). Note, however, that balances due for the surviving spouse, who may file at the same time, must be paid on or before April 30 to avoid interest charges.

Death of a self-employed person: If death occurred between Jan. 1 and Dec. 15, file by June 15. If death occurred in the period Dec. 16 to Dec.31, file six months after date of death (June 16 to June 30). Again, balances due for the surviving spouse, who may file at the same time, must be paid on or before April 30 to avoid interest charges.

Prior returns for the deceased: If there are outstanding returns for prior years for the deceased, the due dates above remain the same; however, Taxpayer Relief Provisions may be applied to late returns due within the last 10 years, or to amended returns previously filed in the prior 10 years, and to waive penalties and interest in hardship cases.

Special privileges and relief options

Executors who are filing final returns may take advantage of two important special privileges for deceased taxpayers that will provide additional relief:

Rights and Things returns: These additional returns can be filed to claim personal amounts in full on each return – terminal and rights or things – and to split between returns and claim other benefits to the best advantage of the taxpayer on each return.

Election to defer payment: Especially because of the deemed disposition rules for capital assets on the death of a taxpayer, it is possible that a large tax liability can occur on the death of a taxpayer. It is possible to roll over assets on a tax-free basis to a surviving spouse, and to maximize the use of previously unused tax losses. But if the final result of this astute tax filing on death is still a balance due, it is possible to postpone the tax payment until the asset is actually sold and money is received. Security for the amount owning may be posted by filing Form T2075 – Election to Defer Payment of Income Tax, Under Subsection 159(5) of the Income Tax Act by a deceased taxpayer’s legal representative or trustee. Although interest will be charged by the CRA as it waits for its money, this option may provide much-needed relief when high-value, low-liquidity capital assets must be disposed of to pay taxes on deemed disposition.

Don’t forget to complete Form TX19 – Asking for a Clearance Certificate, before the proceeds from the estate are distributed. A DFA-Tax Services Specialist has the skills to help with this difficult task. Be sure to get the right help, as the executor is personally responsible for outstanding tax liabilities.

Evelyn Jacks is the founder and President of Knowledge Bureau, which brings continuing financial education in the multiple areas of specialization to advisors and their clients. She is the author of 52 books on tax and wealth planning. This article originally appeared in the Knowledge Bureau Report. Follow Evelyn Jacks on Twitter @EvelynJacks. Visit her blog at www.evelynjacks.com.

Notes and Disclaimer

The foregoing is for general information purposes only and is the opinion of the writer. No guarantee of investment performance is made or implied. It is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting or tax advice.