All About Estates

Rights and things can reduce the tax burden on death

As we all know, the more you earn the more you pay in tax. There may be an exception to this norm on death when amounts are due to the deceased at the time of passing.

The executor of an estate is obliged to file a tax return for the deceased that covers the period beginning on January 1 and ending on the date of death. In this return the executor includes all income for the period and certain deemed receipts such as the proceeds from registered plans and dispositions of capital property. The return is due on April 30 of the following year except when the date of death occurs after October 31 in which case the final return is due no later than six months after the date of death.

Items such as unused vacation leave paid after your death as well as matured, uncashed bond coupons, Canada Pension Plan and Old Age Security payments for the month of your death, and declared but unpaid dividends may be reported separately on a “rights and things” return. In other words the estate is presented with an opportunity to split income by doubling up on the graduated tax rates. Let’s say the inclusions of all those deemed receipts meant that the deceased’s next dollar of income was taxed at the top marginal rate or 46.41% for an Ontario resident. A separate return will allow access to a new set of graduated rates and may possibly lower the tax rate on that next dollar by as much as 20%.

The more you earn does not always have to mean the more you pay especially if there are “rights and things”.

Derek de Gannes

About Derek de Gannes
Derek A. de Gannes: Director, Domestic & International Tax of RSM Canada. RSM Canada is committed to the highest level of integrity, quality and professionalism and provides clients with solutions in the area of Audit, Tax and Transaction Services. Email: derek.degannes@rsmcanada.com