• T2069 Election in respect of amounts not deductible as reserves for the year of death

Reserves in the year of death - Sometimes, when a property is sold, some of the proceeds are not payable until after the year of sale. Similarly, a self-employed person may have amounts that he or she will receive in a later year for work done this year. An example is for work in progress.

Usually, a person can deduct from income the part of the proceeds that are not payable until a later year. This is called a reserve.

In most cases, you cannot deduct a reserve in the year of death. However, there may be a transfer to a spouse or common-law partner, or spousal or common-law partner trust of the right to receive the proceeds of disposition or the income owing. When this happens, the legal representative and the beneficiary can choose to claim a reserve on the deceased's return.

To do this, complete Form T2069, Election in Respect of Amounts Not Deductible as Reserves for the Year of Death, and attach a copy to the deceased's return.

This choice is available only if the deceased was a resident of Canada right before death. For a transfer to a spouse or common-law partner, that person also has to have been a resident of Canada right before the deceased's death. For a transfer to a spousal or common-law partner trust, the trust has to be resident in Canada right after the proceeds or income become locked-in for the trust.

The spouse or common-law partner, or spousal or common-law partner trust includes in income an amount equal to the reserve that is on Form T2069. This income has to be included on the return for the first tax year after death. You have to attach a copy of Form T2069 to that return.

Useful links:

T4011 Preparing Returns for deceased Persons

Interpretation bulletins IT-305R4