Although it can be scary to think about your own death, as you age, it is very important to properly prepare for this final life stage. For most people, this involves preparing a will and an estate plan.
There are no official inheritance taxes or estate taxes in Canada. There are still tax consequences, though, when you die:
- Your estate may have to pay final incomes taxes for you. You are "deemed" to have disposed of all of your assets - just as if you had sold them immediately before you died. This may trigger a gain or loss. If there is a gain, your estate will owe income tax
- You may also have to pay probate fees on your estate.
There are some steps you can take to reduce the taxes and other costs of your estate. This can make a huge difference to your loved ones and others you want to provide for in your will. Related contentLearn more now
Paying your final income taxes: how it works
A final tax return has to be filed for you after your death. It covers the period from January 1 up to and including the date of your death. Certain deadlines apply, depending on the date of your death:
If you die between January 1 and October 31: the return is due on April 30 of the following year. This is the normal filing deadline.
If you die between November 1 and December 31: there is extra time to file. The deadline for filing and paying any tax owing is six months after the date of your death.
Tip: One way to reduce your final tax bill is to claim any allowed medical expenses. In the year of your death, a claim can be made for medical expenses that were:
- paid in any 24-month period that includes the date of death.
- not claimed in any prior tax year.
Before any property is distributed to your beneficiaries, your executor(s) should obtain a clearance certificate from Canada Revenue Agency. This certifies that all final taxes owing have been paid.
Remember: there are many ways to reduce the taxes and fees your estate will pay after your death.
But you need to plan ahead. If you have a complex estate, you will likely need to talk to a tax expert, a financial adviser and/or a lawyer who knows estate law. Content in this section is provided in partnership with the Investor Education Fund, a non-profit organization promoting financial literacy to Canadians. To find out more go to GetSmarterAboutMoney.ca.