Last updated: August 26 2025
Geoff Currier
Death and taxes. You know the saying. As tax professionals, it’s up to you to walk your clients through what can be a lengthy and emotional process. Your role in helping clients get the affairs of the deceased in order cannot be overstated. Over the coming weeks, we’ll look at some of the complexities that arise. Importantly, this is a conversation to have—if possible—before the death of a taxpayer.
The Backdrop
To begin, legal representatives must be chosen and a will must be in place. When a taxpayer dies, the representative must gather information on all sources of income before and after the date of death, along with the fair market value and cost base of taxable assets, to determine gains or losses. A final return, covering January 1 to the date of death, reconciles these details with the CRA.
Unless the legal representative has tax experience, they will need your guidance. If the deceased had been working with a Real Wealth Manager (RWM™), it’s likely that personal net worth statements and tax returns were kept up to date. This is invaluable when assets need to be valued quickly at a difficult time.
Death Benefits
The CPP or QPP death benefit is a one-time payment to the estate of the deceased. It does not go on the final return of the deceased but is generally reported by the estate on a T3 return, or by beneficiaries on their own T1. It may also be split among multiple beneficiaries.
Employer death benefits can also apply. The first $10,000 is tax-exempt; amounts over that are taxable to the estate, surviving spouse, or heirs—but again, not on the final return of the deceased. Employer trust fund payments may also qualify as death benefits.
Group term insurance, including the federal government’s supplementary death benefit, is paid directly to the designated beneficiary and is tax-free.
Optional Returns
Many clients will not know that optional T1 returns are available. These allow certain types of income to be reported separately rather than on the final return, which may reduce or eliminate tax.
For example:
What’s a GRE?
Most estates created upon the death of a taxpayer qualify as a Graduated Rate Estate, which allows graduated tax rates for up to 36 months. This provides important planning opportunities.
Executor responsibilities
If tax returns from prior years were not filed, the executor must ensure they are submitted. Executors are personally responsible for all tax liabilities of the deceased before assets can be distributed. Legal advice is essential.
Local rules
Both federal and provincial/territorial authorities must be satisfied. Outside Quebec, Form 428 in the T1 package is used for provincial/territorial filing. In Quebec, a separate final return is filed with Revenu Québec.
In addition, most provinces and territories levy probate or estate administration taxes. Executors often assume that once probate is paid, there are no further tax obligations. It’s important to clarify that CRA’s federal and provincial/territorial taxes are separate from probate.
The Bottom Line
Dying in Canada is not a simple matter. There are hundreds of decisions to make, beyond the grief and practical issues families face. You can ease the burden by educating clients on their responsibilities and setting expectations. The process often takes months, and CRA does not move quickly.
Knowledge Bureau offers in-depth education on these topics, including the Filing Final Returns at Death Certificate course.