In a follow-up to her recent article, our Estate and Trust
expert, Karen Slezak, answers questions commonly asked by estate
executors in this second instalment.
Q. My aunt died a few weeks ago. When do her taxes have to
A. Your aunt's final personal tax return is due by the
later of six months after the date of her death or
April 30th of the following taxation year (June 15th if she was
self employed before death). Income taxes for the year of death are
due at the time of filing. Additionally, estate tax returns are due
90 days after the taxation year of the estate, and tax is payable
at that time.
Q. Are funeral expenses deductible?
A. Unfortunately, no. Only expenses that are incurred by the
estate to earn income are tax deductible. These expenses are:
professional money manager fees, bank charges, accounting fees and
the portion of trustee or executor fees related to earning income
for the estate. Expenses of a personal nature (e.g., paying debts
of the deceased) or those relating to the administration of the
estate are not deductible (i.e., most legal fees, probate fees and
executor fees related to administration).
Q. I'm an executor, do I have to charge HST on my
A. If you are in the business of providing executor services,
you are required to charge HST on your executor fees, unless you
meet the small supplier rule (i.e., earning less than $30,000 per
year and you have not been registered in the HST system). If a
family member or friend acts as an executor, who doesn't
regularly provide these services, then he/she is considered to earn
income from an "office" and the amount is taxable in the
same fashion as a salary. The fees are subject to tax and Canada
Pension Plan (CPP) withholdings. A payroll account will need to be
opened and a T4A filed for the year. Executor fees are not subject
to employment insurance premiums.
Q. I'm an executor who is about to wind-up an estate.
I've heard that I should apply for a tax clearance certificate.
What is this all about?
A. As the executor, you are responsible to ensure that all tax
returns for the deceased and the estate have been filed and all tax
liabilities are paid (i.e., income tax, GST, and payroll taxes). In
the event that any taxes are unpaid, you will be held personally
liable if the estate assets have been distributed and tax is
assessed at a later time. One way to mitigate this risk is to
request a tax clearance certificate from the Canada Revenue Agency.
This involves providing information about the estate, the assets
held at the time of death and the distribution plan. The Canada
Revenue Agency will review all of the tax filings and if they are
satisfied they will issue a clearance waiver. Once issued, which
unfortunately can take a year or longer, you are released from any
Q. Some of the estate's beneficiaries are non-residents
of Canada. Is there anything special that needs to be done before I
distribute assets to them?
A. Yes. Any income paid or allocated to a non-resident
beneficiary is subject to withholding tax. This tax is often
reduced if there is a tax treaty with the country they live in. For
instance, the withholding tax is reduced from 25% to 15% if the
person is a resident of the U.S. The estate executor will need to
file an NR4 tax return related to the payments and withholding.
Payments of capital (e.g., estate residue) may also be subject to a
25% withholding tax if the estate derives more than 50% of its
value from real estate, resource property, and certain other
properties at any time in the previous five years. In these cases,
there are disclosure requirements to the Canadian government in
addition to the withholding requirements. It is possible to obtain
a special tax waiver to reduce or eliminate this withholding tax
and advice from an estate specialist should be sought to assist
with this process.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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