Deceased Taxpayers & the Voluntary Disclosure Program

Tax Obligations on Death – Toronto tax lawyer comments

There can be many tax obligations on a person’s estate even after he or she has died. These obligations are carried out by the executor. This includes making sure that all taxes owed are paid, filing all the necessary returns of the deceased person, informing the beneficiaries about the taxable portion of the money from the estate they have received, if any, and obtaining the clearance certificates for certifying that all money owed to the CRA has been paid up.

Voluntary Disclosure by Estate of Deceased Taxpayer

While carrying out these tax obligations, the executor or beneficiaries might find out that the deceased person hadn’t completely complied with all of their Canadian income tax obligations. For instance, there can be some unreported assets such as bank accounts outside the country, or under-reported or unfiled income for several years. A common situation is for taxpayers without unreported offshore assets or income leaving the problem for the beneficiaries. If the CRA finds out these tax errors, then usually the estate will face the same consequence that a regular taxpayer will. CRA will impose hefty penalties and interest on the taxes owed, coming from the estate or on the money that has already been given out to the beneficiaries. That’s not all. The executor could also be made personally liable for any money that the CRA is not able to collect from the estate if the estate has been distributed to the beneficiaries.

What is the safest option? It is to come clean and arrange a CRA voluntary disclosure for the estate of the deceased taxpayer. Any unfiled or incorrect returns will be submitted. By doing this, the estate can avoid any potential penalties and potentially some of the interest as well.

But estate voluntary disclosures are complicated often because there are gaps in records. The deceased person is not available anymore to answer queries. Many of the tax omissions can go back a long time. It could be longer than any bank can provide the records. So there is the possibility that the CRA might make some unfavourable assumptions.

For example, the CRA might take this position – no tax was paid ever on income from an offshore account by the deceased, and so, the estate is liable to pay tax on the entire offshore account’s income going back to its inception. To avoid this situation, it is often advisable to submit a “no-name voluntary disclosure”. This allows the family to properly understand the outcome of a potential disclosure. The key is consult one of our experienced voluntary disclosure Canadian tax lawyers. Our Toronto tax law firm has submitted numerous voluntary disclosures for the estates of deceased taxpayers and has the experience necessary to deal with CRA in these difficult situations.