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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. However, 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.
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. There are 3 additional 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:
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"rights or things" - income items
that are earned, but not received at the date of death. These
rights or things include such things as:
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dividends declared but not received |
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bond coupons matured but not cashed |
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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 |
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unpaid employment bonuses |
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CPP and OAS payments received after the date of death |
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a business partner or proprietor - for
income from the business from the end of the business fiscal period to
the date of death |
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a testamentary trust - for income from the
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 has a web page titled "What
to do when someone has died" that can provide further information.
This page has links to information on the types of returns
that can be filed after a person has died.
See also the CRA publication T4011
Preparing Returns for Deceased Persons, and
interpretation bulletin IT-305R4,
Testamentary Spouse Trusts.
Revised: September 06, 2009
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