CRA and Estate Administration
Estate administration takes time. A lot of the time is waiting for Canada Revenue Agency CRA.
I am currently executor for three different estates and all three are getting near the end; and I can pay out the estate to the beneficiaries within the next few weeks.
The shortest time frame for one of them is about 15 months. A second one is about 20 months and the third one has taken more than two years at 28 months.
How quickly an estate can be administered from start to finish depends a lot on Canada Revenue Agency and how complex the estate is.
Why all the waiting for CRA?
First, a final tax return needs to be filed. There are a few simple tax returns that can be filed the same year of death. For example, I have some clients that have died early 2023, and the executor and I are now starting to work on their 2023 final tax return. If the assets were simple and we can calculate the income without the tax slips, we can start to file them in August. CRA will typically take about two months to process. Since it is the current calendar year, they do not process them digitally; the tax return is processed manually.
When clients die later in the year say after August, I normally recommend we wait until next February to file the tax return. It won’t be much quicker if I try to paper file the 2023 final tax return with CRA in November or later. And then often we have to process adjustments if the tax slips were quite different than what we had estimated. For those ones, we will not save any time at all.
The tax slips for 2023 are only issued next February or March. Only a few tax slips are issued immediately such as the T4OAS. As a tax professional, I work with the executor to estimate what the income tax slips will be. If the assets are complicated like non-registered investments, we may need to wait until next Spring to process the final tax return, using the tax slips issued next February and March.
If the deceased had a surviving spouse, we are most likely waiting until next tax season, normally because of pension splitting and other credits that are shared between spouses.
Estate Tax Returns
Most estates will need an estate tax return to be completed too. If the deceased had a surviving spouse and all assets are in joint names and/or the spouse is the beneficiary, then sometimes an estate tax return is not needed.
Estate tax returns are for income earned after death. The most common item is the CPP Death Benefit, now $2500 for most CPP recipients. There are other assets that typically continue to earn income after death including savings accounts, term deposits or Guaranteed Investment Certificates, mutual funds, Registered plans like RRSPs, RRIFs and Tax-Free Savings Accounts. Unless all assets are going to a spouse, the estate must claim the income on an estate tax return. Some income may need to be claimed by beneficiaries if they were named on the assets like RRSPs or RRIFs or TFSAs.
Even if there is a surviving spouse, I often will report the 2500 CPP Death Benefit on a separate Estate tax return as the taxes payable may be quite a bit less than if I include the income on the spouse’s tax return.
We cannot process the estate tax return until all the assets are closed out to the estate account. So, more months have gone by. Once the Estate tax return is submitted, it takes CRA 2-3 months to process.
And then once all these tax returns have been assessed and Notices issued by CRA to the executor, then we can request a Clearance Certificate from CRA. This confirms to the executor that CRA is satisfied all taxes are filed and paid. If CRA determines there are taxes payable in the future, the executor is not responsible, CRA requests payment from the beneficiaries.
A Clearance Certificate can take up to 120 days for CRA to issue. It can be longer for more complex estates.
You can understand why most of the time during estate administration, we are waiting for CRA to process taxes and requests. And then if there are adjustments that need to be made to any previous tax returns, that adds more time too.
The second estate I referred to at the beginning, there was an eight-month delay waiting for adjustments to be made. I waited from August 2022 to March 2023 for CRA to adjust the 2021 final tax return. Then I could file the estate return and then I could request the Clearance Certificate. And now July and August 2023 I am making the payments to all the beneficiaries.
As I mentioned at the beginning, average estates can take about 14 to 24 months to complete. Even if they are considered “simple”, all executors need to file at least one tax return. The shortest time frame I have assisted an executor complete an estate with all taxes filed and the Clearance Certificate was about 10 months. But this was very unusual.
So, if you are an executor, make sure you advise the beneficiaries that it may be 18 months before the estate is completed and you are ready to pay out the inheritance.
Anni Markmann is a Personal Income Tax Professional and Certified Financial Planner; living, working, and volunteering in our community. Contact Ste Anne Tax Service at 204.422.6631 (phone or text!) or 36 Dawson Road in Ste Anne (near Co-op) or info@sataxes.ca