- Most gifts and inheritances are not reported or taxed as income to the beneficiary.
- Income an estate allocates to you is generally included in your income and shown on a T3 slip.
- Capital gains from the deemed sale at death are reported on the deceased's final return, not by the beneficiary.
A T3 slip arrives in the mail with an estate's name on it, and it is not obvious whether you owe tax on the inheritance itself or only on something else. The two are different, and mixing them up is a common source of worry.
This article explains in plain terms what is taxed, who reports it, and which slips and deadlines apply. Tax outcomes depend on the facts, so an accountant or lawyer should confirm your numbers.
The inheritance itself is not taxed to you
The CRA lists most gifts and inheritances among amounts that are not reported or taxed. In Ontario, the Estate Administration Tax, where it applies, is paid by the estate rather than by the beneficiaries.
Tax on the deceased's property is handled differently. A deceased person is considered to have sold all their property just before death, and any capital gain or loss is reported on the deceased's final return, not by the beneficiary. The estate pays that tax, and it reduces what is available to distribute.
There is an exception for spouses. Property transferred to a surviving spouse or common-law partner who is resident in Canada at the time of death can avoid a gain or loss on the final return, and it generally must vest in that person within 36 months of death.
What a T3 slip means
After death, the estate may earn income, such as interest or dividends, before it is fully distributed. An estate or trust uses the T3 slip, the Statement of Trust Income Allocations and Designations, to report income it allocates to beneficiaries. In most cases allocated amounts are included in the beneficiary's income and deducted from the trust's income.
In simple terms, income can be taxed once, either in the estate or in your hands. If the trustee allocates it to you, it generally shows up on your return; if the estate keeps it, the estate is taxed. You are not being taxed twice on the same dollars.
If you are a non-resident beneficiary, estate income paid or payable to you is reported on an NR4 slip, not a T3 slip.
Who files what, and when
| Return | Who deals with it | Key timing |
|---|---|---|
| Final return of the deceased | Legal representative | Due April 30 of the next year for a death from January 1 to October 31; 6 months after death for a death from November 1 to December 31 |
| Final return, business carried on | Legal representative | June 15 of the year after death for deaths January 1 to December 15; any balance is still due by the normal payment date |
| T3 return for the estate | Trustee | 90 days after the trust's tax year-end; if the trust ceases to exist, 90 days from the final distribution |
| Your own return | You | Include any T3 amounts allocated to you |
Estates with special tax treatment
The estate that arises on a death can be a graduated rate estate for up to 36 months. It must be a testamentary trust, include the deceased's SIN on its T3 returns and designate itself as the graduated rate estate, and only one estate can hold that status for an individual.
If the will leaves gifts to charity, a donation by a graduated rate estate can be carried back to the deceased's final return if made within 60 months after death. On the final return the claim is limited to 100% of the deceased's net income, and any excess can be claimed on the previous year's return, subject to the same limit. These claims go on line 34900 of the final return or line 30 of Schedule 11A of the T3 return, with the official receipt. This is mostly a trustee's task, but it affects what is left for you.
What to do next
- Keep every T3 or NR4 slip and the trustee's covering letter.
- Ask the trustee whether each amount is income allocated to you or a return of inheritance, since only allocated income is generally included in your income.
- Ask whether the estate is a graduated rate estate and when it expects to make its final distribution.
- Give your accountant the slips before filing.
- Raise missing or late slips with the trustee in writing.
If the numbers look wrong or the trustee will not explain them, a lawyer can advise on your options as a beneficiary.
Frequently asked questions
Do I pay tax on an inheritance in Ontario?
Generally no. The CRA lists most gifts and inheritances among amounts that are not reported or taxed. Income the estate earns and allocates to you is different.
Who reports the capital gain on inherited investments?
The deceased's final return reports gains or losses from the deemed sale just before death, not the beneficiary. A spouse or common-law partner rollover may defer the gain in some cases.
Why did I get a T3 slip?
The estate allocated income to you, and the T3 reports it. In most cases that amount is included in your income.
I live outside Canada. Do I get a T3?
Estate income paid or payable to non-resident beneficiaries is reported on an NR4 slip instead. Ask an accountant how tax applies to you.
Sources
- Canada.ca – Amounts that are not reported or taxed — canada.ca
- Canada.ca – Taxable capital gains (someone who died) — canada.ca
- Canada.ca – Filing and payment due dates (someone who died) — canada.ca
- Ontario.ca – Estate Administration Tax — ontario.ca
- Canada.ca – T3 Trust Guide (T4013) — canada.ca
- Canada.ca – Trust types and codes — canada.ca
- Canada.ca – Donations and gifts (someone who died) — canada.ca
Links go to official government, court and regulator pages. The law changes — confirm you are reading the current version.
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