Deductions and Tax Credits
In general, refundable tax credits and amounts claimed as a refund of various taxes paid by the deceased prior to his/her death can only be reported in the final income tax return. Furthermore, certain amounts are only deductible in this return, including losses from previous years and the capital gains deduction.
Three types of amounts can be claimed in an optional return9:
- Amounts that can be fully claimed in each return;
- Amounts relating to certain specific income that is included in this return;
- Amounts that can be split between various returns.
When a credit or deduction can be split between various returns, the total amount claimed may not exceed the total entitlement if only one income tax return had been filed for the year.
Tax credit transfer measures may be applied between spouses (see Section II) in the year in which one of the spouses passes away. Such transfers may only be requested with respect to the deceased’s final return, whether it involves transferring an amount to the surviving spouse or applying an amount transferred by the surviving spouse.
9For more information, refer to Guide T4011 – Preparing Returns for Deceased Persons (federal) and the Guide to Filing the Income Tax Return of a Deceased Person – IN-117 (Quebec).
RRSP contributions paid by a deceased, prior to his/her death, are deductible provided all the other conditions are satisfied. In addition, if there is unused contribution room, the legal representative may elect to make a contribution to a spousal plan on behalf of the deceased and deduct these additional amounts in the deceased’s final return. The representative has 60 days after the end of the year of death to make these contributions.
Deductions Relating to Investment Plans – Quebec
No deduction can be claimed for preferred units in a cooperative that is eligible for the Cooperative Investment Plan acquired in the year of death unless the taxpayer died on December 31, as an individual must live in Quebec on the last day of the taxation year to be entitled to this deduction.
However, the deemed disposition of the shares at the time of death is not considered a withdrawal for purposes of the SSP II and no recapture of previous deductions has to be included in the deceased’s income. Nevertheless, such deemed disposition may give rise to a capital gain or loss.
Funeral and Estate Administration Expenses
Funeral expenses and estate administration expenses are personal expenses and are therefore not deductible in computing the income of the deceased or the estate.
Donations pursuant to a taxpayer’s will are generally considered as having been made in the year of death and are eligible for the donations tax credit in the year of death. The same benefits apply to donations of an RRSP, an RRIF or a life insurance to organizations specifically designated as beneficiaries. The limit is increased from 75% to 100% of net income for donations made in the year of death or in the preceding year.
For deaths occurring after 2015, charitable donations made by will and designation are deemed to be made by the estate10, and the legal representative may distribute the donation between the estate and both returns filed for the deceased’s last two taxation years.
10 For its taxation year when the donation is made or a previous taxation year.
Medical expenses (see Section IV) can cover a 24-month period, including the date of death.
Capital losses for the year of death and unused capital loss carryovers (reduced by the capital gain exemption used previously and in the year of death) can be applied against income from any source in the year of death and in the preceding year. Special rules apply when the deceased has already used his or her capital gains deduction.