Death in the Family? Know the Tax Filing Rules in 2020

Evelyn Jacks

When someone in the family dies it is important to turn to the tax system to file any required tax returns  that may be outstanding and to claim specific tax benefits that can help to pay for end-of-life costs.   What are the rules for filing on time in this most unusual tax filing year?

In most years, the final tax return, also known as the terminal return, must be received by CRA as follows:

Death Occurred between January 1 to October 31: Usually this return must be filed by April 30. This year, the filing due date is listed as June 1, 2020, but the payment date is September 30.  No late filing penalties or interest costs will occur. 

Death Occurred after October 31: Usually this return must be filed within six months after the date of death.  This year, the filing deadline is September 30, 2020 or 6 months after the date of death.  Note however that balances due for the surviving spouse, who may file at the same time, is September 30 in 2020.

Death of a self-employed person:  Usually, the due date is June 15.  If death occurred in 2019, file and pay by September 30 in 2020.  Again, balances due for the surviving spouse, who may file at the same time, must be paid by September 30 in 2020.

2019 Return Summary: With the extended balance due date, all terminal returns for taxpayers who died in 2019 must be filed and taxes paid by September 30, 2020 or late filing penalties and interest will be charged if the return has a balance due..

Prior filed returns for the deceased: The due dates above remain the same, but Taxpayer Relief Provisions may be applied to file late or amended returns in the prior 10 years, and to waive penalties and interest in hardship cases.

Special Privileges & Relief Options:  Executors who are filing final returns may take advantage of two important special privileges for deceased taxpayers that will provide additional relief:

• Rights and Things Returns. These additional returns can be filed to claim personal amounts in full on each return – terminal and rights or things - and to split between returns and claim other benefits to the best advantage of the taxpayer on each return.  The due date for the rights and things return is the later of 90 days after the notice of assessment for the final return is issued by CRA and one year after the date of death.
• Election to Defer Payment: Especially because of the deemed disposition rules for capital assets on the death of a taxpayer, it is possible that a large tax liability can occur on death of a taxpayer.  It is possible to rollover assets on a tax-free basis to a surviving spouse and to plan to maximize the use of unused tax losses, as well. 

But if the final result of the astute tax filing on death is a balance due, it is possible to postpone the tax payment until the asset is actually sold and money is received.   Security for the amount owning may be posted by filing form T2075 Election to Defer Payment of Income Tax, Under Subsection 159(5) of the Income Tax Act by a Deceased Taxpayer's Legal Representative or Trustee.  Although interest will be charged by the CRA as it waits for its money, this option may provide much-needed relief when high value, low liquidity capital assets must be disposed of to pay taxes on deemed disposition.  The due date for filing this election is the normal due date for the tax return.  For 2019 returns, this would be June 30, 2020, unless the deceased was self-employed, then it would be June 15, 2020 (unless they died after December 15, then the due date is 60 days after the date of death).

Finally, be sure to complete Form TX19 Asking for a Clearance Certificate before distributing the estate.

Additional educational resources:  To earn your certificate in professional tax filing for final returns, enrol Filing Final Returns at Death.

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