My estate includes the CRA
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 declaration. The final return is just like any other tax return, but there are special rules regarding charitable donations, capital gains, medical expenses, and other claims that are slightly different than a regular return as there will be no future opportunities to “settle” the claims. o defer income taxes The purpose of the final return is to settle all taxes owed during someone’s lifetime that have not yet been taken care of. For example, if you buy stock or property and have not yet realized 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 tax deferral. This is why RRSP tax rates can be high if the account size is large and there are no other factors to consider. Tax deferral in non-tax parlance means delay: the delay is in effect until the strategy is undone on the day of death. If you have transferable credits such as tuition, capital losses, unclaimed gifts or medical expenses, these are also discharged or used on the day of death. There are situations where some of these claims may be addressed in the estate statement. Professional advice for an estate 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 “Return of Rights and Things”. These are only sources of income that were in process of payment before death but were not paid until after death. Examples of this are dividend income that was declared (owed to the decedent) before the day of death, but was actually paid after the day of death. Other examples are vacation pay earned before death and not yet paid, employment income earned before the day of death but not yet paid, increased but unpaid bond interest, increased OAS payments, or work-in-progress for a self-employed person. Only a limited number of things (no pun intended) can be included in this return, but this is a possibility.
The estate statement or T3 statement 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 death, these shares would be “deemed sold” as of the day of death under tax rules. The shares are not actually sold and would continue in the estate account until the executor/executor sold them. If this happened 1 year later, for example, the shares may be worth $6,000 on the actual day of the sale. This means that there is an additional $1,000 capital gain that would occur on the return of the estate ($6,000 – $5,000) which 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 money that has earned income and has not paid income taxes for many years. The RRSP is a classic example of this, as is the payment of a lump sum pension on death. Periodic payments are taxed annually, so the tax impact will not be as pronounced. RRIF accounts would also fall into the potentially high tax collection category, 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 capital gains built in due to being held for long periods of time. The home a person lives in (primary residence) is tax-exempt on the final return if he has lived in it the entire time he has owned the home. The problem is that some small amounts of tax may be due 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 has to include the cra? The answer is probably yes, but it will vary widely depending on