Income taxes are divided into 2 time periods after someone’s death: the last tax year before someone’s death and the period after someone’s death. The period before someone’s death is covered by the final statement. The final return is like any other tax return, but there are special rules regarding charitable donations, capital gains, medical expenses, and other claims that are slightly different from a regular return, as there will be no future opportunities for ” settle “claims or postpone them. income taxes. The purpose of the final statement is to settle all taxes owed during someone’s life that have not yet been resolved. For example, if you buy stocks or a property and have not yet made a capital gain, the property will be considered sold on the day of death and income taxes will be due. If you deferred taxes through an RRSP and did not withdraw the funds before the day of death, taxes are due on the day of death for all money that was subject to the tax deferral. This is the reason why tax rates on RRSPs can be high if the account size is large and there are no other factors to consider. Tax deferral in non-tax jargon means delay: the delay is in effect until the strategy unfolds on the day of death. If you have carry-over credits such as tuition, capital losses, unclaimed gifts, or medical expenses, these are also settled or used on the day of death. There are situations in which some of these claims can be addressed in the declaration of assets. Professional estate advice should be consulted regarding potential tax returns to ensure the best case scenario is presented.
For the period after death, there is an optional return called “Duty and Stuff Return”. These are only sources of income that were in the process of being paid for before death, but were not paid for until after death. Examples of this are dividend income that was reported (owed to the decedent) before the day of death, but was actually paid after the day of death. Other examples are vacations paid before death and not yet paid, earned income earned before the day of death but not yet paid, increased interest on bonds, but not paid, increased payments from the AEO or work in progress for a self-employed worker. Only a limited number of things (no pun intended) can be included in this return, but this is a possibility.
The estate declaration or the T3 declaration deals with income that is generated and occurs after death. These would be the changes in the value of income or assets between the day of death and the day of distribution. As an example, someone had 100 Bell Canada shares worth $ 5,000 on the day of their death, these shares would be “considered sold” as of the day of their death according to tax rules. In reality, the shares are not sold and would continue to remain in the estate account until the executor / executor sold them. If this happened 1 year later, as an example, the stock may be worth $ 6,000 on the actual day of the sale. This means that there is an additional capital gain of $ 1000 that would occur on the estate declaration ($ 6,000 – $ 5,000) that would be income to the estate. The same can happen with real estate, collectibles, or changes in account valuations after the day of death.
The largest sources of tax for the final return are monies that have earned income and have not paid income taxes for many years. The RRSP is a classic example of this, as is the payment of a lump sum pension upon death. Periodic payments are taxed annually, so the tax impact will not be as pronounced. RRIF accounts would also fall into the category of possible high tax collection, as they are extensions of the RRSP. Unrecorded investments with large unrealized capital gains would also face a large tax bill. Large unrealized capital losses would reverse this effect and be a source of tax savings. Real estate tends to have large implicit capital gains because it is held for long periods. The house a person lives in (primary residence) is tax exempt on the final return if they have lived there the entire time they owned the residence. The problem is that some small tax amounts may be owed from the date of death to the date of distribution on the estate statement for capital gains accumulated during this period. Investment properties would also be subject to capital gains or losses.
My heritage have to include the CRA? The answer is probably yes, but it will vary widely depending on