A taxpayer died in October 2021 after a pay equity settlement was reached with the Quebec government in June 2021. At the end of 2022, the estate received the pay equity amount (the “adjustment”) and received a related T4 slip for the 2022 taxation year in early 2023.
(a)
Must the adjustment be included in the terminal return for 2021 even though the income was not received until 2022?
(b)
A rights or things return under s. 70(2) must be filed not later than the later of the day that is one year after the date of death of the taxpayer and the day that is 90 days after the sending of any notice of assessment in respect of the tax of the taxpayer for the year of death. In order not to miss this deadline, could such return be filed on a timely basis, showing an estimated amount for the adjustment, with a subsequent amendment if required?
(a)
CRA stated:
We consider that retroactive payroll adjustments, where a collective agreement or other authorizing document was signed prior to the date of the taxpayer's death, generally constitute rights or things referred to in subsection 70(2). In such a case, the amount of the adjustments is taxable in the year of the taxpayer's death and not in a subsequent year in which the amount is actually paid. This is the case even though the employer is required to issue the taxpayer a T4 slip for the year in which the amount is paid.
Accordingly, as the time for filing a rights or things return had expired, the “executor should therefore file an amended T1 Final Return to include the amount of the salary adjustment to the extent that the taxpayer's entitlement to the salary adjustment existed and was determinable at the time of death.”
(b)
CRA stated:
Where it is not possible, for example because of administrative delays, to obtain from the employer the precise amount of the pay equity adjustment payment within the time required to make the election under subsection 70(2) and to file a Rights or Things Return, the CRA will generally accept the filing of such a declaration where the taxpayer declares an amount estimated on the basis of the best information available at the time the declaration is filed. Once the value of the rights or things referred to in subsection 70(2) has been determined with greater certainty, the representative must, if necessary, amend the return.