Executors: Go Back to Tax School with T2075

Executors take note: CRA has issued an update of 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.

The election can mean the difference between a fire sale on the deemed disposition of assets on death of a taxpayer, and an orderly, potentially more profitable actual disposal.

Here’s how it works:

When the final return is prepared on the death of a taxpayer, any taxes owing are payable right away. However, when the final return (or the optional return for rights or things) includes certain types of income, the deceased’s representative may elect under S. 159(5) to pay the amount due in up to ten equal annual instalments.

Income types eligible for this election are:

• Rights or things
• Capital gains and recapture on deemed dispositions of capital property on death
• Gains on resource properties or land inventories

The update to this form itself is insubstantial—an instruction has been added to send the form with the return in situations where these specific types of income are reported—but the opportunity is big, to defer taxes for a significant period of time. To make this election, file 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, attached to the return that reports the eligible income, along with the first instalment, by the balance due date of the return.

CRA may require security for the remaining amount owing. Instalments are due annually on the anniversary of the due date of the return.

Interest will be payable on the amount due, at the prescribed rate in effect at the time the election is made. Interest is compounded daily from the date of taxes are due until the balance is paid. At a prescribed annual rate of 5% (current), the effective annual rate is 5.127%. That is, annual interest is $51.27 per $1,000 outstanding. Still, the interest owing may be considerably less than the loss from selling assets at the wrong time just to pay the tax bill.

Knowledge Bureau has published an update to its online certificate course entitled Final Returns on Death of a Taxpayer; to brush up on tax consequences at death, check out this newly-revised course, which is now available. An early registration bonus applies when registrations are received by September 15.

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