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Paying taxes is an important part of estate administration

Acting as executor of an estate can be an emotional roller coaster. While seeing beneficiaries receive their gifts may bring some comfort or even joy, there are other aspects that provide neither. For example, no one enjoys paying taxes at any time, but even after an individual has passed away, the government is still owed its share. This is an important, if less pleasant part of estate administration.

The first order of business for the executor as far as taxes are concerned is to settle up with the Canada Revenue Agency. If any taxes are owed to CRA, or if there was an installment payment due prior to the date of death that had not been submitted, these must be paid. Once all outstanding taxes have been paid, it may be worth requesting a certificate of clearance. The certificate is not required, but it is proof that taxes have been paid; if the estate is divided among the beneficiaries before taxes are settled, the executor, as legal representative, may end up liable for any money still owing.

Even after outstanding taxes are paid, it is still necessary to file a final tax return to CRA. This return will cover the deceased's income from the first of the year until the date of death. This must be filed on time to avoid penalties. Any income generated after passing away is to be reported on a separate form called a T3 Trust Income Tax and Information Return. Additionally, it may be possible to file up to three optional returns, depending on the nature of the estate.

For anyone not very familiar with the tax system in Canada, filing taxes for someone who has passed away may be quite challenging. Fortunately, it is possible to assign a representative to handle this task on one's behalf. Having the assistance of a lawyer who practices estate law in British Columbia could be very valuable at a time like this. A lawyer's experience with taxes and estate administration in general can help the process move more smoothly.

Source: FindLaw Canada, "What taxes apply after a person dies?", Miriam Yosowich, Accessed on Jan. 21, 2017

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