According to the BC Provincial Government, the purpose of Make-A-Will Week is to encourage the public to write their Will or bring an existing Will up to date.
This annual campaign helps to create awareness among the general public of the need for everyone to conduct estate planning, but few Will-makers understand the tax implications of their death, and most people who agree to be named as executor in a Will are unaware of the responsibility and associated requirements placed upon them.
What Happens on Your Death?
Many people I speak with in my practice are surprised to hear that there is currently no “estate tax” in Canada.
While there is no estate tax per se, on your death you are deemed to have disposed of any capital property. This means the difference between the fair market value of those assets at the time of death and their adjusted cost base (which, in simplified terms, is the cost you incurred to acquire those assets) would be taxable to you personally at the time of your death as capital gains (net of any applicable capital losses). That includes assets such as principal residences, vacation properties, and investments. Of course, any capital gain on your principal residence may be eliminated by the principal residence exemption (for further discussion on this, see The Scrivener, Winter 2024, Volume 33 Number 3).
What Must Executors Do?
The executor of an estate must notify CRA of the taxpayer’s death as soon as possible to avoid repayment of certain benefits. According to CRA, the executor will need to be prepared to provide the deceased’s
- Â date of death;
- social insurance number;
- full name and date of birth;
- complete address; and
- information from an assessed
return, notice of assessment or reas-
sessment, or other tax document.
The executor must also file certain income tax returns for the deceased, including potentially one or more optional returns.
T1 Income Tax and Benefit Return
The executor must file a regular T1 income tax return for the year of death and any outstanding returns that have not been filed for all previous years.
Final Return
The Final Return is used to report the deceased’s income from property, investments, and belongings up to the date of death, as well as any increases in the fair market value of those assets to the date of death. The Final Return must be filed, and any balance owing paid, by April 30 of the year following the death (if the death occurred between January 1 and October 31 inclusive) or 6 months following the death, on the same calendar day as the date of death (if the death occurred between November 1 and December 31 inclusive).
Optional Returns
The executor can also file other optional T1 returns, if the person who died had eligible income, and they may be able to claim certain deductions and credits in those returns to reduce amounts that the person who died or their estate might owe. Optional T1 returns may be filed to include income that would otherwise be reported on the Final Return, which may reduce or eliminate tax for the person who died. This is possible because certain credits and deductions are allowed to be claimed on the ordinary return as well as the optional returns.
T3 Trust Income Tax and Information
Return
Finally, a T3 Trust Income Tax and Information Return might also need to be filed for the estate of the person who died, if the estate continued to earn income from investments or other sources (such as a death benefit) after the taxpayer’s death, or if distributed property to beneficiaries. Income earned by an estate after the date of death is reported for subsequent years until the estate’s property is fully distributed to beneficiaries. This means it is possible to have to file both a Final Return and one or more T3 Returns.
While preparing a Will is unquestionably a critical aspect of estate planning, Will makers are advised to ensure all required tax filings are kept up-to-date, and to maintain accurate, up-to-date records to assist their future executor in performing their duties.
JEREMY ANDERSEN is a Courtenay Notary Public and CPA, CA, with 20 years’ experience working in the public sector, private industry, and public practice.