Executors are required to file the deceased’s tax returns and pay any tax liabilities.
The executor is the deceased’s legal agent for the purposes of the Income Tax Act. This means that if the executor disperses estate assets before paying all tax amounts required, then they may be held personally liable for tax by the Canada Revenue Agency (CRA).
The executor must step into the shoes of the deceased and when they do, they can assume some liability for taxes owing, even if they are not aware of them. An executor needs to be mindful that when they distribute assets to the beneficiaries, they must ensure that all tax liabilities have been delt with beforehand.
The executor will have to file a T1 Income Tax and Benefit Return and pay any balance owing for the year of death by April 30th of the following year. If the deceased died in November or December, the deadline is six months after the date of death.
When compiling tax returns, the executor may discover that the deceased had not met their tax filing duties in past tax years.
The executor is also responsible for filing and payment of unreported returns from previous years. The deadline remains April 30th of the following year.
In such circumstances, the executor is required to report unreported income and should seek professional tax guidance before deciding whether to file a voluntary disclosure with the Canada Revenue Agency. If the CRA discovers noncompliance, the agency may levy interest and penalties on top of any tax owed on the unreported income, creating a liability for the estate.
If an executor notices one issue, it could make them question whether or not there are others. At that point, most experts would recommend a deeper dive to protect the estate and the beneficiaries from potential headaches and complications.
In any case, it is a good idea to talk to a tax professional for reducing the estate’s overall tax liability.
Before making any distributions to the beneficiaries, the executor should request a clearance certificate from the CRA after submitting the final return and any estate returns. The certificate shows that the estate has paid all taxes owed and releases the executor from personal accountability for any taxes owed in the future.
Executors also need to be aware that the CRA could discover any non-compliance that has not been identified by the deceased. If you are unaware of the deceased’s tax history, or how compliant they may have been, then the executor should be prepared that the CRA could find something.
The executor’s requirement to file a final T1 return for the deceased (and T3s) for the estate and other trusts with the CRA should not be confused with applying to the provincial government to probate the will and paying any associated probate tax.
Being an executor is an important and difficult duty. You should do your best to help your executor by keeping good records and including them in your ESTATE ORGANIZER. Your executor (and your beneficiaries) will than you!
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THIS ARTICLE IS PROVIDED AS A GENERAL SOURCE OF INFORMATION ONLY AND SHOULD NOT BE CONSIDERED TO BE PERSONAL INVESTMENT OR LEGAL ADVICE. READERS SHOULD CONSULT WITH THEIR FINANCIAL OR LEGAL ADVISOR TO ENSURE IT IS SUITABLE FOR THEIR CIRCUMSTANCES.