What’s New for 2024 Tax Returns:

Updated January 2025

Estates, Death and Taxation

In this world nothing can be said to be certain, except death and taxes.

Benjamin Franklin, American statesman

Much has changed but apparently not everything.  Benjamin Franklin’s words are as true in 2025 as they were in 1789 when he wrote them.

When a taxpayer dies, the deceased continues to have both legal and financial responsibilities.  The responsibility transfers to the Estate Administrator, also known as the Executor.  Any existing powers of attorney cease on death and the will (assuming there is one) takes over.  This is important to note, as once you notify banks/investment companies/CRA of the death, you will lose access to the deceased’s accounts and funds until you have followed the required steps.

To simplify, the following are the basic steps in point form:

  • Apply for the CPP death benefit. The application is simple. Funeral homes have the forms, and they can also be downloaded.  Submit the application, if appropriate, and obtain multiple copies of the death certificate as you will need them. The funeral home may take care of this for you, or at least assist you with it.
  • Contact Service Canada/CRA. Whether or not you apply for the CPP death benefit you should contact Service Canada, if the deceased was receiving OAS/CPP, to report the death and stop the payments. It is also important to contact CRA to ensure the death is reported and payments of any tax credits are stopped.   Though typically filing for the CPP death benefit triggers the stop of all benefits, you may need to call and ensure it happened.  If benefits are paid in error after death, they will need to be repaid.
  • Legal advice – The executor should then seek legal advice. Meet with an estate lawyer, ideally someone already familiar with the will, who can advise you on the legal steps. You will need advice on whether you must apply for probate, and if so, they will file an application for probate with the court.  They will also file an application to have the Executor (named in the will) appointed as the Estate Administrator.
  • Probate –When an estate requires probate, you must wait until the administrative process and payment have been completed before you can access the funds of the deceased. However, in the meantime, an Estate administrator may direct how funds are invested and may be permitted to pay necessary bills and taxes on behalf of the estate.  Banks typically require such bills to be paid directly by them.  Probate in Ontario is currently taking as much as 12 months to process – you will need a working relationship with a banker to manage the estate during this period.
  • Tax return(s) for years(s) prior to death – Executors should take care to ensure all returns are filed for years prior to the year of death.
  • Final tax return This is a typical income tax return filed for the year of death – but a short year, from January 1 to the date of death. Income received in the period up to death is reported on this return. The final return – and payment – is due April 30th of the year following death.  If the death occurs November 1 to December 31st, the filing deadline is extended to 6 months following death.  If the deceased was self-employed or their surviving spouse was self-employed the filing deadlines are extended a bit – ask us about this if it applies in your situation.
  • Note that RRSPs and RRIFs are considered cashed out at death. Unless the funds are rolled over into the RRSP or RRIF of a surviving spouse, the full amount held in these accounts is taxable on the final return. This is true even where the bank has advanced the funds to the beneficiary.  The estate is responsible for the income tax, it’s not withheld when the funds are paid out. The resulting tax bill is often substantial.
  • Estate tax return The first year of an estate runs 365 days from the date of death.  The estate tax return is due 90 calendar days after the year end of the estate.  Estate returns report all income earned after death – for example the CPP death benefit, and any investment income earned.  Note that assets such as a home that is a principal residence and a TFSA, which are non-taxable while a person is living, are treated differently after the death.  If the deceased owned a home, it ceases being a principal residence when they die.  Any increase in value from the date of death to the date of sale or transfer is taxable as a capital gain.  TFSAs are treated similarly – the value at the date of death is tax free.  Any income earned post death becomes taxable to the estate.  Estates must continue to file annual tax returns until taxes are paid and assessed and assets are distributed.  (Often much more complex than this simple sentence indicates!)
  • Final steps – on the final tax return you must indicate it is final. Once the assessment has been received, you have the option of applying for a clearance certificate. This is not a requirement, but many Estate Administrators feel it gives them peace of mind, as when CRA issues a clearance certificate it means they have accepted all returns, and all taxes have been paid. At this point you may distribute assets.

Needless to say, there is a great deal more involved.  These are the basic steps which are a good place to start.  Seek advice about your specific situation.