While Canada does not have an “estate tax” there are a few potential taxes that may be incurred at the date of death.

In the year of death, a final T1 return must be prepared and filed by the executor/administrator of the estate that should include all the income that was earned by the deceased up to and including the date of death. Another thing that is included as income is the net capital gain on the deemed disposition of all assets held at the time of death by the deceased (Unless 1. the deceased has a surviving spouse in which case the assets are rolled over at cost, or 2. the principal residence designation applies). In any event the principal residence of the deceased is not taxable at the date of death.

The rule per the Income Tax Act is that all capital property held by the deceased will be treated as disposed of immediately prior to death, thus all capital gains and losses that are not exempt at that time will be realized and included in the final T1 return. For example, if the deceased owned 100 shares of a listed company in a non-registered account that have a cost base of $1,000.00 and a value at the date of death of $3,000.00 then $2,000.00 of capital gain is realized and 50% of that i.e., $1,000.00 will be included in income in the final T1 return (In Canada only 50% of the capital gain is included in income).

For registered accounts, like an RRSP or a RRIF the total value of the account at the date of death will be deemed to be deregistered i.e., it will be deemed to have been cashed out and should be included as income in the final T1 return unless the RRSP or RRIF is left to a surviving spouse, common law partner or a surviving child/grandchild (In some cases).

Navigating estate taxes can be tricky for executors, if you have any questions or require assistance with a deceased taxpayer’s returns, please do not hesitate to give our estate and trust department a call on 604 669 9631 during office hours and on 604 788 1011 after office hours.