When to File a Terminal Tax Return

The due date for the terminal return depends upon the date of the deceased’s death:

• 1) For a death prior to November, the terminal return is due by the following April 30, or June 15th if the deceased had business income. The deadlines are the same for individuals alive throughout the tax year.

• 2) For a death in November or December, the terminal return is due six months from death (

ITA

• , s. 150(1)). There is also a specific rule in respect of the return for the year preceding the year of death, which the personal representative will often have to file if the deceased has been ill before death or has died early in the year.

• 3) For a death before May, the prior year’s return is due six months after the death.

4) If the death is in May or thereafter,  the prior year’s return is due on April 30 in the year of death, and no extension is given (ITA, s. 150(1)(b),(d)). An extended deadline is there for the filing of the basic terminal return.

The T3 return is due within 90 days after the expiry of the trust’s year end. The trust is allowed to choose its own first fiscal period. If, however, there is no such election made, it will end on the first anniversary of the taxpayer’s death (ITA, s. 150(1)(c)).

The Principal Residence Exemption

The principal residence exemption permits a taxpayer and his or her immediate family to own and occupy a residence that is capital property. The exemption allows in full any capital gain on the actual or deemed disposition of the property. However, only one residence per family per year can be so designated.

Considering that both a city residence and a cottage property may properly qualify as a principal residence, it is essential to make the most of the exemption so that the greatest benefit is obtained. Since many cottage properties in recent years have appreciated more than city homes, such assets may deserve greater application of the annual designation. You may want to hire a professional to ensure that you are doing so.

Alteration in use of a principal residence, for example from living in it to renting it out, brings about its deemed disposition. This deemed disposition could be deferred for up to four years by election. When the cessation of occupation is on account of employer required relocation, and the taxpayer eventually reoccupies the property, the four-year period continues indefinitely. According to the rules, a building and up to one-half hectare of land forms a principal residence. If the taxpayer shows that the excess is necessary for the use and enjoyment of the residence, such as, the excess is inseparable, then area more than that stipulated is allowed.

Don’t do anything before fully understanding your rights and obligations.  Contact the lawyers at Levy Zavet PC (Levy Zavet) in Toronto for all of your personal and business tax law needs.