Deceased in Jan 2022, can the final return be done using the 2021 tax year return

[Warren]

If a person dies in Jan 2022, before the 2021 return is filed can the 2021 return include all the information from Jan 2022 or must a return be filed for the 2021 year and another be filed in 2023 for the 1 month in 2022?

[Curmudgeon]

A regular return for 2021 and a final return for the short 2022 period. Some tips:

• Because the person died before filing 2021 and before the filing date, the due date and payment of tax owing is 6 months after the person died. The spouse can also file at that time but must pay any tax owing by the usual time.
• Because the death was so early in the year, the final return can be filed in 2022 using 2021 tax rates. In 2023 the estate executor can request a reassessment of the return to incorporate any 2022 tax changes.

[Warren]

To be clear: 1) submit the return for 2021 using the 2021 software as per normal

                     2) submit a 2nd return (the Final Return) using 2021 software after the first has been submitted, received & accepted.

As an aside the individual was in the lowest tax rate & has not been required to pay taxes for a number of years, and in fact receives a refund. If after the final return has been submitted & accepted would it be reasonable to request the gov't clearance this year rather than in 2023? 

[Curmudgeon]

Yes to (1) and (2). (I'm assuming Ufile will let you put in 2022 as the year of death in the 2021 package, but that's a software issue not CRA). I'm not a tax estate expert but I assume that a clearance certificate would not be issued until the final return has been assessed using the 2022 tax code. Therefore in 2023 a request of a reassessment of the final return followed by a clearance request. However, since such small amounts of money are involved, you might be able to shorten the process. What I would do is submit the final return and after it is assessed and the current tax filing period is finished so that the executor stands a chance of getting through, contact the CRA to see if a wait until 2023 is needed to apply for a clearance request.

Btw, this is what the CRA says:

If a person dies early in 2022, on or before the filing due date for their 2021 return, and they have not filed that return, ... the legal representative may choose to file the final return in 2022. The return generally will be processed in that year, using tax legislation applicable to the 2021 tax year. The legal representative then can request a reassessment of the return in the following year (2023) to apply any tax changes introduced for the 2022 tax year.

[Warren]

Thanks muchly for your help, appreciated.