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Archives for August 2017

Passing of Estate Accounts

Estate Passing of Accounts                                                                                                                 August 29, 2017

 

Many Estates require a Passing of Accounts via a Court hearing. Such “Accounts” may also be required for grant of “Power of Attorney”, Executor of Estate or “Trustee of a Trust”. In this article, I will concentrate on Executor of an Estate, however the rules and issues in the other two categories are very similar.

A Court hearing occurs when no Executor was appointed in a Will, or as a result of contention between beneficiaries or between beneficiaries and Executor. The Executor is responsible for the Accounts and their supporting data, which include invoices, cancelled cheques, bank statements, deposits arising from   realization of assets and payments of liabilities of the deceased, and of the Estate itself.

In a Passing of Accounts for a sizeable Estate, the Accounts need professional presentation, and cross-referencing to support documents. Overall, the Accounts need be balanced, that is that the sum of the receipts and disbursements need agree to the funds in the Bank account. This gives a smack of Integrity to the data. A Passing of Accounts engagement is similar to what a Company does to maintaining its set of books. However the presentation is in a unique form, with many identifiable schedules dictated by judges to the Solicitors presenting to the Court.

To create a set of Accounts, the writer uses licensed software, “Do Process”, which follows the format  of various statement off Accounts required by Ontario Courts. I am a senior Chartered Accountant, CPA with depth of experience in Canadian taxation, and specializing in taxation for deceased persons and their Estates. In support of clients who need to respond to CRA regards the realization of deceased assets, I have put together many packages of data for CRA. The Passing of Accounts is a more formal report which ultimately is presented via solicitors at court.

The effective preparation of the Accounts requires careful organization of receipts and similar documentation in an order matching the Bank statement flow of entries, throughout the period of the Estate.

Often, family disputes arise from how a Power of Attorney for an elder parent granted to one family member was handled, and that was followed by similar doubts and litigation respecting the Estate Accounts.

The solution is much clearer to dispute or defend when the mass of data is boiled-down into a understandable set of facts. And that is how I believe I offer my strength and experience

 

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Executor Responsibilities to Canada Revenue Agency 

Executor Responsibilities to Canada Revenue Agency                                     August 29, 2017

 

This outline deals with matters between Executors on behalf of Estates, and CRA, the Canada Revenue Agency

  1. On death, the deceased is taxed on the gain on capital assets as well as RIF and RRSP holdings held at death. Capital assets exclude a principal Residence, but include all investments such as Cottage, Rental properties, Corporations, Stocks and Bonds. The market value less adjusted cost base is applied here.

 

This is in addition to any “income” otherwise earned during the year, of course.

 

  1. An important exception to the above is that these assets may rollover to a spouse without taxation, effectively at original or adjusted cost base. However, the rules also allow latitude to elect to rollover any individual asset at market value.

 

  1. Many assets such as Cash, Term deposits, etc., may be “jointly owned” for the purpose of gifting on death. However, capital assets are characterized based on who funds the investment.

 

  1. Post-death, when there is no living spouse, and apart from joint assets, remaining assets move by law to the entity of the Estate. The appointment of an Executor is made by will or by the Court. The role of the Executor is to liquidate all assets in according to the will and pay the beneficiaries, expeditiously but, with due care to maximize the beneficiary pay-outs.

 

  1. The continued growth in value, or of income earned by these assets, become taxable to the Estate. The Executor is obliged by law to file annually T3 tax returns; and to apply for a Trust account by T3APP; and to request a Clearance Certificate TX21 once assets are liquidated in such a way that no further income need Refer to #10 respecting TX19!

 

  1. The T3 allows a deduction for certain accounting fees and Legal fees.

 

  1. The law is clear that distributions to beneficiaries should proceed with due haste, so long as funds to cover liabilities are secured. Liabilities include income taxes, of course. Normally a holdback in the range of 5%-10% is retained for unseen

 

  1. Within 90 days of death, the Estate must file a Probate to the Court, defining “assets” and outlaying Probate tax, which varies up to 1.5% of assets of the deceased. The probated assets are taxed by the province in which the assets are based.

 

  1. Canada Revenue Agency takes its income tax enforcement seriously. Here are some issues:

 

  • It expects a T4 be issued to most individuals taking an executor fee;
  • Penalties and Interest are applied in the same way as to other taxpayers, for late filing and late tax payment;
  • Extensive audit

 

  1. Form TX19 is required to request CRA to ordinarily release of Executor and the related Estate of further income tax filings. This request may include Clearance of both T1 and T3 taxation returns.

In a TX19 request, CRA requires a high level of documented proof that all assets of the deceased that draw income taxes have been fully reported and taxed. CRA require substantial data/documents to permit comparison with the Tax returns filed for the Deceased. The details are listed on the Instructions for the TX19. Such as:

Date of death assets, ACB detailed; Fair Market Value of Property distributed; Statement of Distribution to date, detailed; Holdback and Plans for further Distribution;Details of Beneficiaries (SIN#, Address, etc);

This represents voluminous materials

 

 

Charles Russell CPA

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