I have recently been retained by a client to complete a final T3 return for an individual who died in Oct 2018. They completed the 2018 T1 return themselves on a tax program.
On doing my complimentary review of the filed returns, I noted a couple of errors, one of which is the non-declaration of the principal residence owned at the time of death. Deemed disposition would be at FMV since the residence gets inherited by the son.
Has anyone had any experience with late filed designations of this nature and any potential penalty waivers? I am just waiting on the phone with CRA.
I was planning on filing a T1ADJ manually with a letter outlining the situation, and wait and see if a penalty gets assessed.
Re the late filing:
I forget at the moment where I saw about the penalties, but I see that page 43 of Guide T4037 says:
“If you forget to make this designation in the year of the disposition, it is very important to ask the CRA to amend your income tax and benefit return for that year. The CRA will accept a late designation in certain circumstances, but a penalty may apply.”
However, I see that potentially the return you are doing may NOT be the “final” T3 return.
You say that the residence “gets inherited by the son”, which implies that the residence is still the property of the Estate, (having acquired it at FMV on DOD), and the the Executor has NOT YET distributed this property.
Indeed, the Executor should NOT do so until receiving the TX21 clearance certificate which has reported the TAX DISPOSITION of the real estate by the Estate (not the deceased). In the crazy real estate markets, the estate may incur tax on Capital gains, so the Executor would be well advised to take great care that he/she does not end up personally responsible for same.
I would do the T1-Adj and ask for the fairness package if a penalty is charged. Either way, the tax savings of principal residence will be greater than if all the capital gain is charged on the T3. This way, any capital gain on the T3 will be only for the time it was on the testamentary trust return If the the property was not rented, maintenance costs should be added to the book value.
Hi, your client may consider file Voluntary Disclosures Program application to correct the mistake and avoid the any penalty if CRA accepted the application. Since there is no tax owing for principal residence, your client won’t have tax owing and interest charge after correction.
I ended up filing the T1 Adjustment to declare the PRE for 2018 in Mar 2020 along with an overlooked credit, and they received reassessment a few weeks ago confirming the PRE with no penalties and a small refund. Final clearance had been issued a few months ago on T3’s. Client was happy with results.