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