When a loved one dies, and you are named executor of the will, or you are assisting the executor with their duties, you may deal with the process of estate administration, filing tax returns and distributing all or portions of the estate. At what can be a stressful time, it may be difficult to find that the Canada Revenue Agency (CRA) is reviewing your deceased loved one’s affairs.

CRA may start an investigation for different reasons, including screening processes, audit projects, and information from connected files that have been selected for auditing. If a CRA auditor notices problematic information on your deceased relative’s tax return, such as inconsistences with information provided, that return may be selected for review or audit. If selected, the auditor will consider several types of records, including previously filed tax returns, business records, and personal records. Accordingly, it is important to keep well-organized records of your deceased relative’s tax information, business records, and personal records in the event of an audit.

I found a mistake on my deceased relative’s tax return. What do I do?

If you are acting under a Power of Attorney or as an executor and notice that taxes have not been reported properly, you may be entitled to apply to the Voluntary Disclosure Program (“VDP”).

The VDP offers taxpayers, dead or alive, a chance to correct errors on a tax return they had previously filed, or to file a return they should have filed, but did not. Voluntarily disclosing mistakes or newly found assets of your deceased relative may avoid some penalties that CRA would otherwise impose. For more information on the VDP, see Voluntary Disclosures Program – Introduction.

Updating CRA with any newly obtained information is important. An estate trustee can be held personally liable for any outstanding taxes on assets of the estate if assets are distributed prior to obtaining a clearance certificate from CRA. However, clearance certificates are issued on the assumption that information provided by the applicant is accurate and up-to-date. If new information comes to light, it should be disclosed to the CRA.

If you are uncertain whether you should enter the VDP and disclose newly found information to the CRA, it is possible to commence anonymous preliminary discussions with a CRA official to gain insight into the program and better understand the risk and benefits. Such discussions are meant to be informal and non-binding and can occur without disclosing the taxpayer’s identity. It is imperative to contact a tax professional before deciding how to proceed with the VDP.

How long after death can CRA reassess my relative’s affairs?

CRA can reassess tax returns for individuals for up to three years from the date of the original Notice of Assessment. After this date, returns may only be reassessed if the taxpayer made careless or neglectful misrepresentations to CRA.

For further information, or assistance with voluntary disclosure, please contact a tax professional.