Simplifying tax administration for deceased taxpayers
The tax administration for deceased taxpayers is complicated, as we pointed out in response to the Canada Revenue Agency (CRA)’s 2019 Serving Canadians Better Consultations. Because the survivors of every deceased Canadian need to confront this complexity at an emotionally difficult time, CPA Canada is continuing to promote our ideas for simplifying the CRA’s processes through the joint CRA-CPA Canada Services Committee.
Overall, we suggest the CRA review the entire reporting process for deceased individuals and find ways to streamline it. Below are some specific ideas we are pursuing from our submission and follow-up conversations with members. Although we recognize that taxes on death for private company owners can be even more complex, our focus here is on Canadians without these holdings.
Set up a dedicated CRA team
The tax issues that can arise on death are quite different from those of regular personal income tax returns. Setting up a CRA deceased taxpayer division and centralizing expertise could improve the efficiency and technical quality of the CRA’s services for these returns. This would also ensure that any programs applied to these returns would be designed and run by CRA agents familiar with the unusual tax issues that arise on a death.
In addition, the CRA currently processes final T1 and T3 estate returns separately, leading to duplicate information requests and other inefficiencies. These returns should be processed at the same time by the same group so that the same CRA staff can consider issues affecting both returns at the same time. The clearance process would also be simpler if it were managed within this group.
Eliminate unnecessary T3 trust returns
Many T3 trust returns are only filed to report the CPP death benefit. The CRA should consider whether there is an easier way to deal with these amounts without losing access to graduated rates.
Improve the accuracy of banks’ RRSP and RRIF reporting
Banks and other financial institutions frequently make errors on reporting slips for registered retirement savings plans (RRSP) and registered retirement income funds (RRIF), for example, by issuing a slip to the wrong beneficiary or with an incorrect amount. These errors can lead to unnecessary T1 amendments, creating inefficiencies for both the deceased taxpayer’s representative and the CRA. The CRA should work with these institutions on an integrated process that would minimize these errors.
Simplify post-death capital property loss claims
Estates often incur losses after a taxpayer’s death but before their final personal tax return is due. These losses can generally be claimed on the taxpayer’s final tax return if conditions are met, but the T1 form has no specific field for these amounts. According to the CRA, the estate should file the terminal return without the loss claim and ask for a T1 adjustment, even when the loss is known at the time of filing. This causes inefficiencies for taxpayers’ representatives and the CRA alike. The CRA should think about amending T1 forms to simplify these claims.
Simplify claims for post-death declines in RRSP or RRIF values
Dealing with post-death declines in the value of RRSP and RRIF accounts can be challenging. This is especially true if the final distribution is made the year after the taxpayer’s death. In these cases, the deduction is claimed through a T1 adjustment supported by the account issuer’s executed Post-Death Decline in the Value of a RRIF/RRSP form. The CRA should look into ways to simplify these claims
Modify T-slip matching for deceased taxpayers
Many issues arise for deceased taxpayers due to the CRA’s verification process of matching slips, particularly for unpaid Old Age Security (OAS) income and declared but unpaid dividends. It’s often beneficial to claim to report these amounts on a special elective return for “rights or things,” but when this is done, the CRA often seems to conclude that the income was not reported. In view of the amount of unneeded time spent resolving these issues, the CRA should consider modifying its T1 matching and other verification processes for deceased taxpayers’ returns.
Centralize reporting of death to government
The federal government should consider introducing a central service for reporting a death once for all federal tax and benefit programs. The service should integrate programs administered by the CRA and Service Canada, for example, so that when a death is reported, all Old Age Security and Canada Pension payments and CRA requests for outstanding instalment requests would stop. Wills could also be submitted to this central hub so that all relevant government programs can access them, avoiding multiple requests to the deceased taxpayer’s representative for the will from different government departments.
Minimize redundant CRA requests for wills and powers of attorney
In many cases, CRA staff from multiple areas ask for the same wills and power of attorney documents, even though they have already been provided to the CRA. The CRA should review its internal systems to minimize redundant documentation requests, for example, by allowing taxpayers to upload a will or power of attorney through MyAccount’s Submit Documents service. Also, representatives of deceased taxpayers should be allowed to submit a will or power of attorney with e-filed returns to expedite authorization requests.
Electronic filing of T3 trust returns
The CRA should enable estates of deceased individuals to e-file T3 returns when taxes are owing.
One area where the CRA has already improved its services regarding deceased taxpayers involves authorizations for taxpayer’s representatives. These authorizations used to end on the taxpayer’s death, making it difficult for their representatives to get re-authorized so they could deal with a deceased client’s affairs. Now the CRA allows representatives’ authorizations to extend after their client’s death, eliminating some of the administrative headaches that used to occur in the past.
Easily implemented changes like this can go a long way toward simplifying Canada’s tax system where deceased taxpayers are concerned. We look forward to providing more input on these matters in our future work with the CRA-CPA Canada Services Committee.
Keep the conversation going
What other ways could the CRA simplify the tax system for deceased taxpayers, their survivors and their representatives? Share your ideas by posting a comment below so that we can share them with the CRA.
CPA Canada’s Tax Blog is designed to create an exchange of ideas on tax policy and practice issues, and their impact on those who practice tax. Your comments can provide helpful input into the public interest advocacy positions developed by CPA Canada.