Final Tax Return for Deceased
Loved Ones

Terminal or final T1 returns are used to report any Increases or Decreases in income based on the fair market value (FMV) of a deceased person’s estate. FMV includes all property, investments and belongings up until the date of death. The relevant documents determine all credits and deductions the deceased loved one or estate is entitled to claim. A final return must be filed for every person who has died.

As the representative, legal or Executor, of an individual who died, you must file a Final Income Tax and Benefit Return for the deceased. This return is referred to as the final return (or the Terminal T1 Return).

It is important for you to understand that you MAY be able to reduce or eliminate the tax burden for the deceased by reporting income from specific sources earned during specific time periods in optional T1 returns. Typical examples of revenue sources that can reduce taxes for the estate of deceased loved ones are eligible employment, business, and rental income. The estate can also claim certain investment income earned before death. The ability to reduce taxes for the estate  depends on the type of optional return and the dates involved.

The deadline to file the Final T1 return (or “terminal” tax return) is determined by the exact date of death. The Final T1 return and any balance owing are due as follows:

• Death between January 1 and October 31: April 30 of the following year.
• Death between November 1 and December 31: 6 months after the date of death.

NOTE: There is also the final T3 Trust return, if applicable, for the estate, which has a different timeline. See the CRA information here. The final T3 return is required if income was earned by the estate after death. The estate’s legal representative can choose a tax year-end for the estate on any date up to one year after the date of death. The T3 return must be filed within 90 days of that chosen year-end.

In order for the executor or legal representative for the estate, to discuss or process tax matters with CRA, you must officially notify them of the passing and register your status. You will need to submit:

A copy of the death certificate or funeral director’s statement.

The deceased’s Social Insurance Number (SIN).

Proof of your legal capacity (e.g., a complete copy of the will, letters probate, or letters of administration).

If there is no will, you must fill out Form RC552, Register as Representative for a Deceased Person.

The responsibilities of the legal representative for filing a final tax return for deceased persons are detailed here.

If there is a will, it only determines who is legally responsible for filing the final tax return for the deceased. A will determines exactly how the deceased’s assets are distributed and who is to manage the estate’s tax obligations.

In the instance when there is no known will, a provincial court appoints an estate administrator (usually a next of kin or spouse) to act as the legal representative and fulfill the tax responsibilities.

The final return must still be filed, whether a will exists or not.

Once someone is empowered to act as the legal representative for preparing the final tax return for the estate of the deceased, the only required document is normally the Terminal T1 final return. However, there are 3 optional returns that can be filed that can reduce the tax liability. The optional returns are discussed in the question below. Furthermore, a T3 Trust Final Return may also be required if income was earned by the estate after death.

There are not special deductions. However, there are 3 types of optional T1 returns that you can file in addition to the final return for the deceased that can reduce the tax liability for the estate. You may only file an optional T1 return if you have income from eligible sources and time periods to report on that return.

You are not required to file any of the optional T1 returns, but it is often in the best interests of the estate for preserving as much of their legacy as possible for the heirs. This is possible because you can claim certain credits or deduction amounts more than once, split them between returns, or claim them against specific kinds of income. If you choose to file an optional T1 return, report all income that is eligible to be included in that particular optional T1 return, instead of on the final return for the deceased.

Three types of optional returns.

• Return for Rights or Things-This is to report income that was earned but not received before the individual died. Had the person not died, they would have included the income in their usual T1 Income Tax and Benefit Return. Rights or things do not include capital gains.
• Return for a Partner or Proprietor– This return is to report any income received between the end of the fiscal year of the business and the date of death, IF the person who died met both of the following criteria: (1) the person who died was a sole proprietor or partner of a business and (2) the end of the fiscal year of the business is NOT December 31.
• Return for income from a Graduated Rate Estate– You may report income received by the person who died from a Graduated Rate Estate (GRE) of another person who died (generally the income will be on a T3 slip) between the fiscal year-end of the GRE and the date of death.

Once the Terminal T1 tax return has been processed by CRA, CRA will issue a clearance certificate (see more here) to confirm that an estate of a person who died, trust, or corporation has paid all amounts owing for income tax and GST/HST, interest, and penalties it owed at the time the certificate was issued, or that the Minister of National Revenue has accepted security for the payment of the liabilities.

A clearance certificate allows the legal representative to distribute assets from the estate without the risk of being personally accountable for unpaid debts the person who died, estate, trust, or corporation might owe to the CRA. Your financial institution or lawyers may also ask you for a clearance certificate.