Behind The Counter: Death and taxes

Having a will in place is essential to ensuring your financial affairs are in order upon your death.

Gabriele Banka.

The easiest way for surviving family members to wind up your affairs is if you have a will in place.

The will should name the legal representative who would be the executor of the will.

If there is no will, then the court will appoint an administrator as the legal representative.  The legal representative can charge a fee to the estate to be compensated for the time taken to wind up the affairs of the deceased which would then need to be claimed as income in their own personal tax return.

The executor can be held personally liable for any outstanding taxes owing by the deceased’s estate.

Probate is the process of getting the court to rule that a will is legally valid.  If the person dies with assets worth more than $25,000 such as land, house or investments, the will is usually required to go through probate.  There are fees for the process depending on the value of the assets in the estate and the province of residence.  You could probably call this estate tax.

As a legal representative, your responsibilities under the Income Tax Act are to file all the required returns for the deceased, and make sure that all taxes owing are paid. You need to inform the beneficiaries if any of the amounts that they will receive from the estate are taxable.

The first order of business is to let the Canada Revenue Agency  know that the person has deceased. When this happens the CRA will remove all representatives from the deceased’s account and will stop all automatic payments such as Old Age Security.

At this time the representative needs to provide to CRA a copy of the death certificate, the SIN of the deceased, copy of the will or other legal documents such as grant of probate or letter of administration indicating who the legal representative is.

There are three kinds of personal returns that can be filed for a deceased person upon death which are the final return, the rights and things return and a business return.  Under the income tax act, the deceased person is deemed to have disposed of all capital property at the time of death.

If the assets cannot be distributed on the day of death, they roll over into what is called a testamentary trust until the assets are fully distributed.  This trust requires the filing of an annual tax return called a T3.

The rules around a testamentary trust have changed beginning in 2016.  In the past, a testamentary trust had the same graduated tax rates as an individual.  Now a testamentary trust can only use the graduated tax rates for 36 months after death.  Beyond that, the trust needs to pay tax at the highest rate.

Finally after all the returns have been filed and you have received the assessment notices from CRA, and before any property is distributed, the legal representative should request a Clearance Certificate from CRA.  You will need a clearance certificate for the personal returns and for any testamentary trust returns filed.

Another form of tax planning might be to divest yourself of as many hard assets as possible and give the money to the children before you die.  The tax burden would fall on you, rather than your children.

Gabriele Banka is a CPA, CGA and the owner of Banka & Company, CPA.  She can be reached at 250-763-4528 or info@bankaco.com

 

Just Posted

Accident at Highway 97 near airport

Fire crews and ambulance officials have responded to the scene

Kelowna motel robbed, suspect sought

The suspect threatened to harm the lone front desk clerk and demanded money.

Kelowna airport hosts accessibility event

Canucks Autism Network event brings families together to help deal with air travel

Penticton reporter reflects on covering Charles Manson

Charles Manson, leader of a murderous cult, died on Sunday at 83

West Kelowna neighbourhood fed up with criminal activity

Prowler frustrating West Kelowna residents

Heavy snowfall expected on Coquihalla

Snow forecast for mountain highways

Annett finishes season on the podium at Ironman Arizona

Penticton triathlete sets new course record on the bike

Cash donations create purchasing power

Salvation Army and food banks stretch a donated dollar a long way

Hergott: A pedestrian’s legal obligation

Lawyer Paul Hergott questions the moral obligation of pedestrians and motorists

Coyotes grab Okanagan boys title

George Elliott defeats Seaton in AA volleyball final, seeded third heading to provincials

ICBC overbilling for crash repairs not the problem, dealers say

Collision repair shops reject union claim of inflated costs

Last day for shoeboxes at Kelowna Gospel Fellowship

Kelowna church has been gathering gifts for kids in need in countries around the world

Owls soar to Okanagan volleyball title

KSS girls win 4A championship for 12th straight year beating Pen Hi in final

B.C. groups to address child sex abuse in sports

viaSport is organizing a full day of education in association with Canadian Centre for Child Protection and the Coaching Association of Canada.

Most Read