Does an Estate Have to File a T3 Trust Return in British Columbia?

When someone dies, the person handling the estate often learns that there are two separate tax streams. One is the deceased's own final return. The other is the estate itself, which can earn interest, dividends, rent or gains while it is being administered.

This article explains how the T3 Trust Income Tax and Information Return fits in for an estate in British Columbia, when it is required, when it is due, and how it connects to the clearance certificate. Your situation may have details that change the answer, so treat this as a general guide.

This article covers the law of British Columbia.

The final return and the T3 are different filings

The final return (the T1) reports all of the deceased's income from January 1 of the year of death up to the date of death. Income that the estate earns after death may have to be reported on a T3 Trust Income Tax and Information Return.

The legal representative, who is typically the executor named in the will, is responsible for filing the final return, any returns the deceased had not filed for earlier years, and T3 returns if required. Filing the final return does not replace the T3, and the T3 does not replace the final return.

When an estate has to file a T3

An income-receiving trust must file a T3 if any one of the following applies:

• Total income from all sources is more than $500.
• Income of more than $100 is allocated to any single beneficiary.
• There is a capital distribution to a beneficiary.
• Income is allocated to a non-resident beneficiary.

Separately, an express trust resident in Canada (other than a listed trust) must file every year even with no income. Special filing rules can apply to some kinds of trust, and whether a particular estate falls under this rule depends on how it is set up, so it is worth confirming with a lawyer or accountant.

An estate may not need to file a T3 if it is distributed immediately after death or earned no income before distribution. In that case, beneficiaries get a statement of their share, and some post-death income, such as the CPP death benefit, can be reported on the beneficiary's return instead.

Deadlines and the estate's year-end

A T3 return is due no later than 90 days after the trust's tax year-end, and any balance owing is also due within 90 days. If the 90th day falls on a weekend or holiday, the next business day counts as on time.

The year-end you use depends on the type of trust. A graduated rate estate (GRE) is an estate that arises on death, exists no more than 36 months after the death, is a testamentary trust, provides the deceased's SIN on its T3 returns, and designates itself as the GRE on its T3 with no other estate doing so.

Choosing a year-end can affect when your first T3 is due, so it is sensible to settle it early with an accountant rather than after the fact.

Late filing, interest and the clearance certificate

Failing to file a required T3 return may lead to a late-filing penalty, and interest and penalties may apply to unpaid amounts.

The T3 also matters for a second reason. A clearance certificate confirms that the estate has paid the income tax and GST/HST, interest and penalties it owed, or that the Minister has accepted security, so the legal representative can distribute assets without personal responsibility for those amounts. It is requested on Form TX19.

If you distribute assets without a certificate and tax is owing, you can be held personally liable for the outstanding balances, up to the value of the assets distributed.

• Wait until the required returns are filed and assessed before you request the certificate.
• Supporting documents include the signed will or administrator appointment, a list of assets at death, a statement of distributions made and proposed, and details of beneficiaries receiving non-cash property.
• The CRA sends an acknowledgement within 45 days, and the assessment can take up to 120 days.
• If the deceased or the business had a GST/HST account, Form GST352 must be completed together with Form TX19.
• A separate certificate is needed for any trust.

Because the assessment can take months, plan your distribution timetable around it instead of promising beneficiaries a date.

What to do next

• Confirm who the legal representative is and keep the will or court appointment handy.
• List all income the estate has earned since the date of death, such as interest, dividends, rent and gains.
• Check that income against the triggers above to see whether a T3 is required.
• Decide whether the estate qualifies as a graduated rate estate and which year-end to use.
• Diarize the date 90 days after the year-end, remembering the weekend and holiday rule.
• File the final return and any T3 returns, then request a clearance certificate before distributing.
• Speak with a lawyer or accountant if the estate has business income, non-resident beneficiaries or complicated assets.

Frequently asked questions