Area of Law: Tax Law
Answer # 189
What taxes apply after someone dies?Region: Ontario Answer # 189
Although there is no death tax in Canada, there are two main types of tax that are collected after someone dies. First, there are taxes on income or on capital gains earned during the last year of life. Second, there is interest or capital gains made on money in the estate. You can minimize the amount of taxes payable by arranging your finances and property with the help of an estate lawyer.
Who is responsible for paying a deceased person’s taxes?
After a person dies, someone has to be responsible for paying the deceased’s taxes. Most people write a Will and appoint a personal representative to act upon their death. This person carries out the instructions in a Will, and is responsible for administering the estate. One of the responsibilities of a personal representative is to file the deceased’s last tax return and pay any taxes owing, using money from the deceased’s estate.
Duties of a personal representative
When someone dies, their personal representative (also known as an executor) is normally required to file a tax return for the deceased by April 30 of the following year. However, if the person died after October, their tax return may be filed within six months of the person’s death. The tax return will include all income and capital gains made from January 1st of that year until the day of the person’s death. Generally, any income or capital gains that are made after the person’s death will usually be considered to be the income of the person’s estate. The personal representative will be responsible for paying taxes on such income with money from the estate.
Taxes on property owed at time of death
Even if a deceased person did not sell any of their property or receive any capital gains during their last year, they will usually have to pay tax on property they owned at the time of death unless the property is being inherited by a spouse. This normally applies to property such as land or investments, and not to personal use property.
Generally, property that is not being inherited by a spouse will be considered for tax purposes to have been sold immediately before the deceased’s death at fair market value. Fair market value is the estimated value that something would sell for in the market at a given time. If the fair market value is greater than the amount that the deceased person originally paid for the item, the amount of the increase will be included in the deceased’s last tax return and taxed as a capital gain.
Estate Administration Tax
When probating a Will, a personal representative must file an Application for a Certificate with the Superior Court of Justice and pay an estate administration tax. This tax is progressive and is based on the total value of the deceased’s estate. For more information on this estate tax, go to 145 Probating a Will.
Tax implications for inheritances of property
If an individual inherits property from their deceased spouse, when they sell it or when they eventually die, they will have to pay taxes on the full capital gain made from the time their spouse acquired the property.
For legal advice and assistance with tax planning, a CRA tax dispute, or other tax issues, contact Tax Chambers LLP
You now haveoptions: