They say that nothing is certain except for death and taxes. However, when dealing with both at the same time, figuring out what to do can create a sense of uncertainty.
Finding closure is an important part of the grieving process and, when a loved one passing away, this often includes tying up loose ends and settling their estate.
A part of settling a deceased individual’s estate is ensuring that their taxes are properly filed one last time.
If you are responsible for filing taxes for someone who has passed away, it’s important to ensure that the process is completed properly. Here is a quick guide to filing what is called the Final Return:
Types of Deceased Returns
After someone passes away, there are three types of deceased returns that may need to be filed. A Final Return has to be filed after death but it is also possible to have to file other returns known as Optional Returns and Trust Returns.
The final return is an income tax return that is filed for an individual in the year of their death. One final tax return must be submitted on their behalf to cover any income received in that year.
If the death occurred between January and October, the final return is due by April 30th. However, if the individual died between November and the end of December, it is due six months after the date of death.
Optional returns are for claiming income that you would otherwise report on the final return as a means of reducing or eliminating taxes for the deceased. You can claim certain amounts more than once, split them between returns, or claim them against certain types of income.
Lastly, a trust return refers to the tax form package for a trust and is due 90 days from the end of the trust’s tax year. A trust is an entity or individual that holds the right to properties or assets in lieu of the beneficiary that is entitled to them
In this article, we’re going to focus on how to file a final return for someone who has passed away.
Who is the Legal Representative Responsible for Filing a Final Return?
Most people pass away with a will that names the executor, the inheritors, and the beneficiaries. The executor is the individual who has the authority to collect necessary information in order to distribute the deceased’s assets according to the will.
If someone dies without a will, also known as “intestate”, the process takes longer since someone has to apply to the courts to be appointed as administrator. This is usually a surviving spouse or one of the surviving children.
In either case, the executor or administrator is responsible for filing the final return.
Why Does a Final Return Have to be Filed?
When someone passes away, they must pay tax on their regular income but may also need to pay tax on what they owned. A final return is how the legal representative (the executor or administrator) finds out if the deceased owes any income tax.
Income tax is like any other debt and has to be paid by the estate first before the inheritors or beneficiaries receive anything.
Once the legal representative files the taxes, they receive an NOA (Notice of Assessment) which includes the date the CRA checked the tax return, details of what is owed, or the amount to be refunded.
After the NOA is received, the legal representative can get a clearance certificate and start distributing property from the estate.
What Information Do I Need for the Deceased’s Tax Return?
If you are the administrator or executor of the deceased’s will, you will need to collect some information before filing the final return.
You will need to know the deceased’s income from all sources starting from January 1st of the year they passed up to and including their date of death. You may have to look at previous returns as well as contact employers, banks, trust companies, and pension plan managers.
Before you file the taxes, gather any information slips and documentation that you need to indicate or estimate income and deductions.
As far as getting information from the CRA or Revenu Québec, you will need to provide a copy of the death certificate, the deceased’s social insurance number, and a copy of the document proving that you are the executor or administrator.
How to Complete a Final Return
In order to complete a final return for an individual who has passed away, you must first determine the due date for the return in order to avoid penalties and interest for filing late.
When filling out the tax forms, complete the identification area on behalf of the deceased and calculate the total income you need to report. You’ll also want to determine any eligible deductions and non-refundable tax credits before figuring out the total taxable income.
From there, you’ll figure out the refund or balance owing.
Keep in mind that final returns cannot be submitted online through NETFILE. You will have to mail in the return or have them filed by an accountant.
Need Help Filing the Final Return?
As an executor or administrator, you want to make sure that your loved one’s final return is filled out and filed properly to avoid penalties and ensure the estate is settled as quickly as possible.
Dealing with the loss of a loved one is hard enough without worrying about the estate – but it doesn’t have to be a stressful ordeal!
When you hire an accounting firm such as Liu & Associates, we can help you avoid fines, fees, and penalties from occurring as well as ensure all aspects of the final return are completed thoroughly and properly.
Why not let our experienced accountants handle the financial matters of your loved one’s estate? Contact Liu & Associates today!