Filing a Final Tax Return for Someone You’ve Lost

Losing someone you care about is hard, and there’s a lot to think about during this time. One thing that might not come to mind right away is that you’ll need to file one last tax return for them. We’re here to guide you through some important things to consider when you’re preparing this final return. 

Understanding Income for the Final Return 

Everything the person earned from the start of the year until the day they passed away needs to be reported on what’s called the “final” or “terminal” return. For money that comes in regularly, like interest, rent, or a paycheck, you count it as if it was earned a little bit each day, even if the person didn’t actually get the money before they passed away. 

For example, if someone was paid $4,000 on the 1st of the month but passed away on the 23rd, you would only count $2,968 of that as income for the final return, assuming the month has 31 days. You’ll need to figure out these amounts yourself because the last T4 slip will show the whole year’s income. 

Dealing with Property 

The final return also needs to include the value of any big-ticket items the person owned, like houses, stocks, or mutual funds. This is to figure out how much the value went up since they bought it. If the person left a spouse or common law partner behind, a rule called “deemed disposition” can push off the tax payment on any increase in value until after the spouse or partner passes away. This can also apply to a main home, which might not get taxed on the increase in value at all. 

Things like RRSPs and RRIFs can be passed on to the surviving spouse or partner, or even a dependent child or grandchild, without the whole value being counted as income right away. But if there’s no one to pass these to, the full value at the time of death has to be reported as income. 

What Doesn’t Go in the Final Return? 

The CPP or QPP death benefit of $2,500 shouldn’t be included in the final return. It usually goes on a separate return for the estate, but sometimes it can go directly on a beneficiary’s return as a special case. 

Look out for any losses on investments from previous years that weren’t claimed because there were no gains to offset them. These can be used to lower the income reported on the final return, which could reduce taxes. 

Other Money Matters 

If the person wanted to give money to charity in their will, these donations can still get tax credits, just like if they were made while the person was alive. These can be claimed on the final return, the return for the year before they died, or on the estate’s tax return for up to five years. 

Medical expenses can also be claimed, but not funeral costs. You can claim medical bills from any 24-month period that ends in the year the person died, which can be really helpful if the person passed away later in the year and had expenses that were paid after their death. 

Need help with all this? Orientum Group is here to help you with the tax return of someone you’ve lost.