Income taxes Step 2, appointment of an authorized representative is found here.
Income taxes Step 4, prepare and file all necessary returns is found here.
The third step in dealing with income taxes for the deceased and the estate is to gather all relevant information.
The information to gather includes, if possible –
- the last tax return filed by the deceased;
- the last Notice of Assessment received from CRA by the deceased;
- information on income received in the year of death from pensions, savings, investments, RRIFs and RRSPs.
- Income on all assets owned by the deceased immediately prior to death, including the amount paid by the deceased (their ‘adjusted cost base’) and the fair market value on date of death. This includes real estate (houses, cottages etc.), savings and investments, and includes RRIFs and RRSPs.
There is no benefit in waiting, so the sooner the trustee gathers information the better.
Note that “T slips” for pension, interest and dividend income for a given year will usually not be available until January/February of the following year. Usually date of death values (but likely not final T slips) can be received from the financial advisor or financial institution before probate, and if not, then immediately after probate.
Do not panic if you can not gather this information immediately or at all. We can help.
If you cannot find or access previous years, your authorized representative (Miltons or other tax professional) can access for you what CRA has on file.
Accessing historical CRA information is also often a good way to identify savings and investments that the trustee might otherwise not be aware of, which is crucial for the ‘asset gathering’ phase of estate administration.
Medical expenses
It is common for folks to incur significant medical expenses in the last years of life. It is important to gather all medical expenses (invoices, statements, evidence of payments) to claim the valuable medical expense tax deduction. Often these expenses have been incurred but not claimed for several years prior to death. The estate trustee should gather everything that might be relevant and provide them to the tax professional.
Disability tax credits
If the deceased was disabled in the year(s) before death, gather all relevant information to support claiming the relevant tax credits, including medical evidence of disability (from the treating physician of the deceased). Sometimes, this may not have been documented or claimed for many years and can be worth a significant amount. We can help.
Valuing real estate: when is an appraisal required?
It is crucial to have a properly documented fair market date-of-death value for all assets owned by the deceased, even if these assets are ‘rolled-over’ to a surviving spouse [More about spousal roll-overs of capital property here].
For financial assets it is usually possible to get a statement that has fair market value on date of death from the financial institution. Things are trickier for real estate.
If the estate trustee will be able to sell the property to an arms-length third party “soon” after the death, then the value of the sale may be the best evidence of the value of the property.
However, if –
- the property will not be sold (for instance when a surviving spouse will continue to live in it); or
- the property will be sold to someone ‘not at arms length’ such as a relative of the deceased; or,
- there will be a signficiant delay between the date of death and the date of any sale (for instance, the delay caused by Ontario with probate in Toronto)
then it is best to secure a full appraisal of the date of death value.
The requirements for a proper appraisal are that an independent reader, now or many years in the future, should be able to review and assess the opinion of value and how it was reached. An appraisal is an opinion, not a fact, and more art than science.
Accordingly, a proper appraisal usually includes detailed comparison of the property to ‘comparable properties’, with analysis of how the ‘comparable properties’ were chosen, the factors that make the property more or less value than the properties it is compared to, and the valuation methodology used (other sales, income, etc.).
Sometimes a ‘letter of opinion’ from a realtor will suffice, but often they are too terse and lack sufficient supporting facts and analysis to provide a strong evidential foundation. An estate trustee needs to be able to prove to both CRA and beneficiaries that they used the ‘fair market value’ of the property for tax and estate accounting purposes, and a free (and weak) letter of opinion will not provide the necessary support.