So just took on a new client whose mom had died in the prior year. the prior accountant had put the CPP and OAS for the month of death on a rights and things return which is something I have never done but as I find out, that is a thing. But the prior accountant treated the cpp and oas differently. For the CPP he showed the total T4AP amount in total income and took an other deduction on line 23200 for the last months amount. For the OAS he reduced the amount in total income by the final months amount.
This return was subject to clawback so the clawback does not include the amounts that are reported on the rights and things return.
That doesn’t seem right to me but maybe it is a loop hole…
I do this regularly with final T1’s (unless the person dies at the end of the month and has received the CPP/OAS by the date of death). I normally will exclude the last month’s income from the CPP/OAS reported on the final T1. I’ve never taken a deduction for the last month’s CPP (or OAS). I had one situation where a corporate shareholder was very ill. We talked to his POA (daughter) and had a dividend declared from the company that was payable but not yet paid. When the shareholder passed away, the dividend was paid to his estate and declared on a Rights and Things return.
The questions isn’t really what income can be recorded on a Rights and Things return but rather is it correct that the last month of OAS/GIS does not end up being clawed back.
It isn’t clawed back because the clawback is based on the taxable income from that return, not all returns. Avoiding the clawback of that last month of OAS is one of the main benefits of doing the R&T return.
Paragraph 70(2)(a) says that the R&T return means the separate return is considered a return as if the taxpayer were another person. Therefore, the OAS on the R&T return would not be considered income of the deceased’s final return.
You have to actually file the R&T return and there are time limits on filing the R&T return to have it recognized by CRA. I might add that CRA is not really good at assessing these situations properly. They often take a long time to assess the R&T return.