For income tax purposes, a person is deemed to have disposed of all of their property on the date of death at the moment before death. They are also required to bring into income for this final tax year such items as the remaining balance in their RRSP or RRIF plan regardless of whether there is a valid beneficiary designation.
The ITA does contain some relieving provisions for the year of death where there are qualifying transfers such as gifts to a spouse or spouse trust, and gifts to disabled children or grandchildren. The technical process of obtaining the relief from the deemed disposition depends partly on whether the gifts are made through a Will or beneficiary designation or by election of the estate trustee. The implications of the options should be considered during the estate planning process to ensure the intended result will be obtained without complicating the administration of the estate since the processes are not necessarily identical.
There is also an increased charitable tax credit limit of 100% of income, up from 75% in other years, as well as the ability to carry back unused charitable tax credits to the tax year prior to death.
The filing deadline for the terminal return is 6 months from the date of death where the death occurred after October 31st of the year. For deaths occurring earlier, it is the usual April 30th deadline. These are the general rules although there may some exceptions.
The estate tax year starts on the day after the date of death and can run for up to 365 days which would give it an off-calendar year end. The filing deadline is 90 days after the tax year end which is the same rule for other forms of trusts.