I received the Notice of Assessment for the Deceased T1 Return where I had claimed a Capital Loss in the Year of Death. The CRA did process the return and did take into account the negative amount on line 127.
As was previously mentioned, they did have a bit of a difficult time with it, as line 150 (Total Income) on the Notice of Assessment is higher than the actual line 150 income on the T1 by exactly the amount of the net capital loss. The NoA does show the negative on line 127 but it doesn’t get added into line 150 on the NoA (nor line 236 - Net Income).
There are no deductions from Net Income on the T1 return, or the NoA, yet the Taxable Income is the correct amount, so somehow the CRA deducted the negative amount from line 127 between Net Income and Taxable Income.
This would be fine except… and this is where the NoA differs from the Software.
The client’s Medical Expenses are based on 3% of the Net Income reported on line 236. The Net Income that is calculated by TaxCycle includes the Capital Loss claimed on line 127, whereas the higher Net Income figure on the Notice of Assessment was what the CRA used to calculate their medical expense deductible.
Therefore… the Notice of Assessment resulted in a higher balance due than the T1 return that I filed because the CRA did not include the capital loss on line 127 when calculating the 3% deductible. The result is the client owes income tax on 3% of the net capital loss deducted in year of death because the medical expense claim was reduced.
If the CRA are correct in their Assessment then TaxCycle needs to ignore any negative amount on line 127 in year of death when it comes to calculating the Medical Expense deductible.
I will write in and ask for the Return to be adjusted to what I filed and see what they say.