The Canada Revenue Agency made several interesting yet not surprising comments on corrective payments received by an estate.
Where an executor receives a corrective GIS lump sum payment on behalf of the deceased’s estate, the executor may elect to file an optional rights or things return in respect of the deceased. The corrective lump sum payment will be included in income in the rights or things return and a corresponding deduction will generally be available. As the amount received will be included in the determination of total income on the rights and things return it may impact certain deductions or non-refundable tax credits available in that return. The optional rights and things return must be filed by the later of 90 days after the sending of the notice of assessment or notice of reassessment for the final return; and one year after the date of death.
An executor, as the legal representative of the estate, is required to obtain a clearance certificate before distributing property that they control. Where the executor fails to obtain a clearance certificate they are liable for any unpaid amounts in respect of any property distributed. A clearance certificate covers only the properties you controlled from the date you received control to the date you asked for the clearance certificate. After you receive a clearance certificate you may discover another property that affects the amount of income or capital gains you reported on the taxpayer’s return(s). If so, you will have to get another clearance certificate before you distribute the newly identified property.
Trustees need to exercise caution when corrective amounts are received.