Filing Taxes for a Deceased Person: What Executors Need to Know – A Complete Guide by a Montreal CPA Firm Near You

Filing taxes for a deceased person in Canada is one of the most important

responsibilities of an executor, yet it is also one of the most complex. When someone

passes away, their legal representative must file specific tax returns, report all income

up to the date of death, calculate tax owing on final assets, and obtain a clearance

certificate from CRA before distributing the estate. Failure to do so may expose the

executor to personal financial liability. Many executors misunderstand their tax

obligations, assume a regular tax return is sufficient, or overlook optional returns that

can reduce taxes owed. This guide explains everything an executor needs to know

about filing taxes for a deceased person in Canada, including the T1 Final Return,

optional returns, capital gains rules, deadlines, and the importance of obtaining a

clearance certificate.

Legal and Regulatory Framework

Filing taxes for a deceased person in Canada is governed by several sections of the

Income Tax Act. Under section 150, the deceased person’s legal representative must

file a T1 Final Return, reporting all income earned from January 1 to the date of death.

Certain assets, such as investments, cottages, and rental properties, are deemed

disposed of at fair market value at death, generating capital gains under section 70(5).

Optional returns may also be filed: the Rights or Things Return under section 70(2) and

the Return for a Partner or Proprietor under section 150(4). These optional returns allow

income to be split across multiple returns to reduce taxes. The executor must also file

any outstanding previous-year returns. Before distributing estate assets, the executor

must request a clearance certificate under section 159(2), which protects them from

personal liability for unpaid taxes. These rules form the legislative foundation for filing

taxes for a deceased person in Canada.

Key Court Decisions

Several court cases emphasize the importance of proper tax filing for deceased

individuals. In Miller v. Canada, the executor failed to file optional returns and paid

significantly more tax than necessary; the court upheld CRA’s assessment because the

executor had a legal duty to understand available elections. In Kuchta v. The Queen,

CRA successfully pursued an executor personally for unpaid taxes because the

executor distributed estate assets before obtaining a clearance certificate. In Estate of

Comeau v. Canada, the court confirmed that a deemed disposition at death must be

reported even if the estate does not sell the property. These decisions demonstrate that

filing taxes for a deceased person in Canada requires strict adherence to CRA rules and

careful estate administration.

Why CRA Targets This Issue

CRA pays close attention to final tax returns because they often involve large deemed

dispositions, multiple income sources, and estate-related deductions. Missing income

slips, incorrect asset valuations, or failure to file optional returns can lead to substantial

underreporting. CRA also monitors estates where assets are distributed quickly without

a clearance certificate, putting executors at risk for unpaid tax liability. Transactions

involving rental properties, investment portfolios, or business assets often trigger

reviews because deemed capital gains can be significant. CRA examines whether the

executor properly reported RRSP or RRIF income, death benefits, and pension

adjustments. Because filing taxes for a deceased person in Canada can result in large

tax assessments, CRA performs close oversight.

Mackisen Strategy

At Mackisen CPA Montreal, we guide executors through every step of the tax process to

ensure compliance and minimize the estate’s tax burden. Our process begins by

collecting all income slips, bank statements, investment records, and property

information for the deceased. We prepare the T1 Final Return with accurate reporting of

deemed dispositions and capital gains. We evaluate eligibility for optional returns to

reduce taxes by splitting income. For estates with significant assets, we coordinate

valuations, verify fair market values, and document capital gains. We prepare any

outstanding returns from prior years and ensure that all tax obligations are complete.

Once all filings are submitted, we request a clearance certificate from CRA to protect

the executor from future liability. Our structured approach ensures that filing taxes for a

deceased person in Canada is done correctly, efficiently, and with maximum tax

savings.

Real Client Experience

A client inherited an estate with multiple rental properties and significant investment

accounts. They attempted to file the final return independently and overlooked the

Rights or Things Return. CRA reassessed the estate for additional tax, and the executor

faced personal liability. We intervened, reconstructed the full tax picture, filed the

missing return, and reduced the tax burden substantially. In another case, an executor

distributed the estate assets before obtaining a clearance certificate. CRA later

assessed unpaid taxes due to a deemed disposition on a cottage. We negotiated a

payment plan and prevented legal action. A third executor struggled to value a private

company shareholding at death. We coordinated professional valuations, filed revised

returns, and obtained CRA approval. These real examples illustrate the importance of

professional guidance when filing taxes for a deceased person in Canada.

Common Questions

Executors frequently ask whether they must file a return even if the deceased had no

income. Yes, if the deceased owned assets that trigger deemed dispositions. Others ask

whether RRSPs become taxable at death. RRSPs are fully taxable unless transferred to

a spouse or dependent child under specific rules. Some ask how long CRA takes to

issue a clearance certificate. Processing times vary, but can take several months

depending on complexity. Another common question is whether funeral expenses are

deductible. They are not. Executors also ask whether capital losses can offset gains on

the final return. Yes, losses can be used on the T1 Final Return but not carried forward

after death. These questions highlight the need for clarity and expertise in filing taxes for

a deceased person in Canada.

Why Mackisen

With more than 35 years of combined CPA experience, Mackisen CPA Montreal helps

executors stay compliant while minimizing tax burdens on estates. Whether you are

preparing a T1 Final Return, filing optional returns, valuing assets, or obtaining a

clearance certificate, our expert team ensures precision, transparency, and protection

from personal liability.