Tips for Executors: 10-Year Instalment Payment Option Elusive

Executors who face the problem of how to pay the taxes on the estate where the capital is tied up in capital assets have a way to solve the problem – if they can find it.

When the taxes payable on the final return include capital gains tax on the deemed disposition of those capital assets at death, the executor actually may have to liquidate some of those assets to pay the taxes due. To pay on time, assets might have to be liquidated at “fire sale” prices if it were not for subsection 159(5) of the Income Tax Act.

Using 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 executor may elect to pay the taxes due by instalments over a period of up to ten years. This election will allow the executor time to find a buyer who will pay fair market value for the capital assets, thus providing full value to the beneficiaries. The first instalment by the balance due date of the return. CRA may require security for the amount owing.

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

For more details on the rules that apply to returns for the year of death, see the Knowledge Bureau course Final Returns on Death of a Taxpayer.