29 October 2010 External T.I. 2010-0377091E5 - Liability for interest & penalties of late estate

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: Who, if anyone, is liable for interest and penalties of the estate of a deceased individual? Legal Representative?

Reasons: The wording of paragraph 150(1)(b)

Position: The legal representative is jointly and severally liable with the taxpayer's estate to pay each amount payable under the Act by the taxpayer at or before the time the amounts are owing and remain unpaid to the extent that the legal representative is in possession or control of the taxpayer's property. The interest and penalties may be waived in whole or in part under subsection 220(3.1), depending on the facts.

XXXXXXXXXX
									2010-037709
									Richard Aronoff

Attention: XXXXXXXXXX

October 29, 2010

Dear XXXXXXXXXX :

Re: Time Limit to File Returns for Deceased Persons

This is in reply to your email of August 6, 2010, wherein you requested a technical interpretation as to whether interest and penalties under subsections 161(1) and 162(1) of the Income Tax Act would be applicable in the two fact situations described below. In each instance the legal representative of a deceased individual has filed the required return(s) pursuant to paragraph 150(1)(b). In both fact situations death occurred in February and, in September, the legal representative filed the return for the previous calendar year. There is no mention that the deceased carried on a business. The circumstances of the two fact situations are as follows:

1) The deceased died intestate. During the summer of the year of death application is made for a certificate of appointment of estate trustee without a will and a friend of the deceased is appointed the estate trustee.

2) The deceased left a will naming an executor. Probate is granted during the summer of the year of death and a certificate of appointment of estate trustee with a will is issued appointing the individual named in the will as the estate trustee.

It should be noted that an administrator, executor, trustee or other like person administering, winding-up, controlling or otherwise dealing in a representative or fiduciary capacity with the property belonging to a taxpayer's estate, falls within the definition of "legal representative" under subsection 248(1) of the Act.

Under subsection 159(1) of the Act a legal representative is jointly and severally liable with the taxpayer to perform any obligation or duty imposed on the taxpayer by the Act. Such obligations and duties would include: filing all the required returns of income for
the deceased, including prior year returns where the person has not already done so, paying all taxes owing, and letting the beneficiaries know which of the amounts they receive from the estate are taxable. In respect of the joint and several liability to pay all taxes owing, the liability is limited to the extent of the taxpayer's property in possession or control of the legal representative.

It should be noted that pursuant to subparagraph 150(1)(d)(i), an individual, who does not carry on a business during the year, is required to file a return on or before April 30th of the following year. Where the individual is unable to file the return, it must be filed by the individual's guardian, committee or other legal representative. Paragraph 150(1)(b) provides that where an individual dies after October and before the day that would be the individual's filing due date for the year if the individual had not died, the legal representative must file a return of income for the taxation year of the taxpayer on or before the later of the day that is six months after the day of death and the day the return would otherwise be required to be filed had the individual not died.

In the foregoing fact situations, where the individual dies in February, the due date for filing the return for the year of death would be April 30th of the year following death. The return for the year immediately preceding the year of death, would need to be filed within six months after the day of death, which would be August of the year of death.

Given that, in each of the two fact situations, the return for the preceding year was filed in September, the interest and penalty provisions of subsections 161(1) and 162(1) would accrue on any tax that was unpaid after the date the returns were required to be filed. While the legal representative can request that the Minister extend the time for filing the return under subsection 220(3), it should be noted that such a request has rarely been granted to individual taxpayers. In the event that the legal representative could not have reasonably filed the returns and remitted the taxes owing on time because of a late appointment, relief from interest and penalties under subsection 220(3.1) may be warranted. The relief would depend on the particular facts.

Should you have any queries or require additional information in regard to this matter, please do not hesitate to contact Richard Aronoff at the telephone number provided at the outset of this letter.

Yours truly,

B.J. Skulski
Manager
Insolvency and Administrative Law Section
Income Tax Rulings Directorate