The final return stops at the date of death. Anything the estate earns after that, such as interest, dividends, rent or a gain when the house sells, is reported on a T3 Trust Income Tax and Information Return, filed for each year until the estate is fully distributed.
When the estate needs a T3
Generally, a T3 is filed if the estate realizes a gain or receives payments after the death, which is why many estates end up with both a final return and at least one T3. The rules on which trusts must file changed for tax years ending on or after December 31, 2023, and the CRA's T3 guide sets out the full test. If the estate has tax payable, or sells (or is deemed to sell) capital property such as a home or shares, expect to file, but those aren't the only situations that call for a return.
You may not need a T3 if the estate is distributed right after the death or earned no income before it was distributed. Give each beneficiary a statement showing their share instead. And if the only income after the death is something a beneficiary can report on their own return, such as the CPP death benefit, you might not need a T3.
The first T3 needs a trust account number. You can apply online or with Form T3APP, Application for Trust Account Number, and you'll need a signed copy of the will.
Graduated rate estate or other testamentary trust
For tax purposes an estate is a testamentary trust, and most estates qualify as a graduated rate estate (GRE). A GRE is taxed at the same graduated rates as an individual, and donations it makes can in some cases be carried back to the final return. An estate is a GRE if:
- it arose on and because of the death, and no more than 36 months have passed
- it is a testamentary trust
- the deceased's social insurance number is on its T3 returns
- it designates itself as that person's GRE on its T3 return, and no other estate does
GRE status ends no later than 36 months after the death. A testamentary trust that isn't a GRE has a December 31 year-end, and an estate still open after its GRE status ends generally moves to calendar-year year-ends.
Picking the first year-end
A GRE doesn't have to use the calendar year. The legal representative picks the end of its first tax year, which can be any date up to one year after the date of death, and shows it on the first T3.
Pick a date other than the anniversary of the death and you'll file one extra T3, covering the stretch between the third year-end and the 36-month point when GRE status ends. In the year the estate wraps up, its tax year usually ends on the date of the final distribution.
Deadlines, T3 slips and income paid to beneficiaries
The T3 has to be filed, and any balance paid, within 90 days after the estate's tax year-end. When the estate is wound up, that's 90 days after the final distribution of its assets.
Income that is paid or payable to beneficiaries in the year is generally deducted from the estate's income and included in theirs. Each beneficiary gets a T3 slip, sent to their last known address no later than 90 days after the year-end, and the slips and T3 Summary go to the CRA by the same date. If you're on the receiving end, our answer to whether an inheritance counts as income explains what you report and what you don't.
A late T3 with a balance owing gets the same penalty as a late personal return: 5% of the balance plus 1% for each full month late, up to 12 months. Even with nothing owing, a late T3 can draw a penalty of $25 a day, with a minimum of $100 and a maximum of $2,500.
Clearance certificate before the last payout
Once the returns are filed and assessed and everything owing is paid or secured, the legal representative can ask for a clearance certificate with Form TX19, Asking for a Clearance Certificate. An executor who distributes assets without one while tax is owing is personally liable, up to the value of what was distributed. The executor's first steps are in our post on the final tax return for someone who died.
BC probate fees
Probate fees aren't income tax. They're paid to the province before a grant of probate or administration is issued, on top of court filing fees. Under BC's Probate Fee Act there's no fee if the estate is worth $25,000 or less. Above that, it's $6 for every $1,000 (or part of $1,000) between $25,000 and $50,000, plus $14 for every $1,000 (or part) over $50,000. On an estate valued at $500,000, that works out to $6,450. The value is the gross value of the person's real estate and tangible property in BC, plus, if they normally lived in BC, their intangible property wherever it's held, that passes to the personal representative.
How we help
We prepare the returns for an estate while it's being settled, along with the final personal return. No two estates look alike, so we quote each one case by case. We walk the executor and the family through each step at whatever pace suits them.