No one wants to think about death, let alone talk about it, but it’s essential that anyone with valuable assets have an up-to-date will and has appointed an executor to carry out their wishes once they are gone.
What does it mean to be an executor?
The executor takes over the responsibility of filing the deceased’s final tax return and estate returns. They must make sure all taxes of the deceased individual are paid and will also need to obtain a clearance certificate from the Canada Revenue Agency (CRA), both personal and estate, to confirm all taxes, interest and penalties, if applicable, are paid. This then allows the executor to distribute the deceased’s assets since the executor is personally liable for taxes if they distribute the assets to the beneficiaries before paying tax liabilities.
Dealing with a person’s estate can be arduous; therefore, the executor can be compensated for fulfilling their duties. In British Columbia, the maximum fee is 5% of the gross aggregate value of the estate. However, the work performed must justify the fee. If the executor chooses to compensate themselves, the income is taxable.
“It’s important to provide an executor with clear instructions and access to tax receipts and forms,” said Sharlane Bailey, owner of Canwest Accounting. “Our tax specialists at Canwest Accounting can help with preparing the tax forms required by the CRA.”
Many people are surprised to learn that the CRA issues a taxable $2,500 death benefit as a one-time lump-sum payment, which can be used to pay for funeral costs. These funds are taxable on the T3 estate return and not the individual’s T1 return. Additionally, corporations can pay a $10,000 survivor benefit to an employee or shareholder’s estate, which is a tax deduction to the corporation. This payment is non-taxable to the estate but needs to be reported in box 106 of T4A.
To have the exceptional team at Canwest Accounting save you time and money by doing your bookkeeping, tax planning for your business or filing estate returns, call or email us. Our offices in Victoria and Langford are still closed to the public to keep everyone safe during the COVID-19 pandemic, but we have a pickup and drop off service that is very convenient.
The suggestions and advice provided by Canwest Accounting should not be relied upon in place of professional advice. You are responsible for checking the accuracy of relevant facts and opinions provided.