When a person dies in British Columbia, their executor is responsible for filing a final tax return as well as any necessary estate returns for any income earned on investments after their death. If the decedent does not have a Will appointing an executor, someone can apply to the court to become the administrator of the estate. If no one is willing or able to act as the executor or administrator the Public Guardian and Trustee will often step in.
The first tax return that needs to be filed is the Date of Death Return. This is a T1 Income Tax Return for the year in which the person died. If someone dies in the earlier in the year, the executor or administrator may also need to file their previous year’s return, for example, if they die on March 1, 2021, it is likely that their 2020 tax return has not yet been filed. This tax return is due by April 30, 2021 or 6 months after the date of death, whichever is later. In this example, the 2020 tax return would be due by September 1, 2021 (6 months from the date of death). The executor or administrator would also need to file a 2021 T1 tax return for the period from January 1, 2021 to March 1, 2021 which is due the following year by April 30, 2022.
In addition to the T1 Income Tax Return(s), a T3 Trust Return will need to be filed to report any income earned by the estate after the date of death, for example, interest on investments or capital gains on property that does not qualify for a principal residence exemption. Typically the period used for the trust return will be from the date of death to December 31st of that same year. Trust returns are due 3 months after the estate’s year-end. In the example above the trust return would be due by March 31, 2022 (3 months after the estate’s December 31, 2021 year-end). Alternatively the executor may choose to use a year-end date that is one year from the date of death, for example, a reporting period from March 1, 2021 to March 1, 2022. In this case the estate trust return would be due by June 1, 2022 (3 months after the March 1, 2022 year-end). After 3 years however estates are required to change their tax year-end to December 31st.
There is usually more than one estate trust return filed during the administration of an estate until the estate is settled. After the final trust return is filed, the executor or administrator can request a Clearance Certificate from Canada Revenue Agency which will confirm there are no further taxes due and they are safe to distribute the remaining estate. Retaining an accountant with expertise in estates can ensure all of the necessary tax returns are done properly.
Deborah A. Todd