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Financial Planning -> Wills and Estates -> Minimizing tax at death

How Can You Minimize Taxes of a Deceased Taxpayer?

There is no "estate tax" in Canada, but when a person dies there is a deemed disposal of any capital property, so any capital gains would be taxed at this time.  This would include assets such as vacation properties and investments.

If the deceased taxpayer's property is being distributed to the taxpayer's spouse or to a "spouse trust", then under certain circumstances taxable capital gains, allowable capital losses, recaptures of capital cost allowance, and terminal losses may be deferred.  The deceased taxpayer's cost basis for the property would then become the cost basis for the property to the spouse.  Thus, any taxable capital gains would be deferred until the property is disposed of by the spouse.  Alternatively, by doing an election, the deemed proceeds to the taxpayer can be the fair market value of the property - in some situations this can be more beneficial.  See the links at bottom to the T4011 guide for detailed information.

More than one tax return may be filed for a deceased taxpayer, allowing the taxpayer's income from the year of death to be split among different returns.  One "ordinary" return would be filed for January 1st to the date of death.  This is called the final return.  There are 3 optional tax returns that can be filed as if the taxpayer is "another person".  These returns can reduce or eliminate income tax in the year of death, because certain  deductions are allowed to be claimed on the ordinary return as well as the optional returns.  These optional returns can be filed for income from:


"rights or things" return - income items that are earned, but not received at the date of death.  These rights or things include such things as:

dividends declared but not received


bond coupons matured but not cashed


employment salary, commissions and vacation pay owed by the employer at the date of death, for a pay period that ended before the date of death


unpaid employment bonuses


CPP and OAS payments received after the date of death


work in progress of a professional business, which has previously been excluded from the business revenue (see modified accrual basis accounting)


return for a business partner or proprietor - for income from the business from the end of the business fiscal period to the date of death


return for a testamentary trust - for income received by the deceased taxpayer from a testamentary trust from the end of the trust fiscal period to the date of death

The optional returns are filed using the normal T1 personal tax return forms.  These forms can be obtained from the Canada Revenue Agency (CRA) General Income Tax and Benefit Package web page.

CRA Resources:


What to do when someone has died - has links to information on the types of returns that can be filed after a person has died.


T4011 Preparing Returns for Deceased Persons

Transfers of capital property to spouse or common-law partner - other than depreciable property


Transfers of depreciable property to spouse or common-law partner


IT-305R4, Testamentary Spouse Trusts

Tax Tip:  If your situation is at all complicated, you would be very wise to get the help of a tax professional.

Revised: July 02, 2015



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