Estate Tax Return Filing in Ontario: T3 and Final Return Steps

If you are the executor, the tax filing can feel like the most intimidating part of the job. The good news is that the returns follow a fairly predictable pattern, and most estates need fewer of them than people fear.

This article explains which returns exist, who files them, when they are due and a sensible order to work in. Your own estate may need more or fewer, so treat it as a map rather than a checklist you can follow without advice.

The returns you may need to file

The deceased's legal representative files the returns, and a final T1 return is required for every person who dies. Beyond that, the list depends on what the person owned and earned.

The final return and the optional returns

On the final return, the deceased is treated as having sold their property just before death, so capital gains and RRSP amounts can show up here. Outside Quebec, provincial tax is calculated on Form 428 in the T1 package for the province of residence at death.

The optional returns are not required, but filing them can reduce or eliminate tax because the eligible income goes on the optional return instead of the final return. Rights or things include items such as unpaid salary or accrued bond interest, and capital gains are excluded.

Due dates differ. For a death from January 1 to October 31, the final return is due April 30 of the following year, and for a death from November 1 to December 31 it is due 6 months after death. If the deceased or their spouse or common-law partner carried on a business, the final return is due June 15 of the following year for deaths from January 1 to December 15, but any balance owing is still due on the regular payment date, generally April 30. The Rights or Things return is due the later of one year after death or 90 days after the Notice of Assessment for the final return is sent. The other two optional returns follow the final return due dates.

The estate's T3 return

The T3 reports income the estate earns after death that has not been paid to beneficiaries, and post-death income is reported in later years until the estate's property is fully distributed. It is not needed if the only post-death income is reported by a beneficiary, such as a CPP or QPP death benefit.

A T3 is generally required if the estate has tax payable, or allocates income to beneficiaries and has income over $500, allocates more than $100 to any one beneficiary, makes a capital distribution, or allocates income to a non-resident beneficiary. It may not be needed if the estate is distributed right after death or earns no income before distribution, though the final T1 is still required.

You need a trust account number first. You can get it instantly through the Trust Account Registration online service or by completing Form T3APP, and you must provide a signed copy of the trust document or the last will and testament. A T3 is due no later than 90 days after the trust's tax year-end, with any balance owing due the same date.

Graduated rate estates and the year-end

An estate can be a graduated rate estate for up to 36 months after death. It must arise on and as a consequence of death, remain a testamentary trust, and designate itself as the graduated rate estate on its T3, and only one estate can hold that status for an individual. The deceased's SIN must be on its T3 returns.

This status matters for timing. A graduated rate estate can use a non-calendar tax year, unlike other trusts, which generally must use December 31. For one that is wound up, the final T3 and balance are due 90 days after the date of final distribution of assets. Choosing a year-end is a decision to make with an accountant.

A sensible order and what to do next

How the returns fit together depends on your situation, so it is worth confirming the order with a lawyer or accountant. The clearance certificate should be requested only after returns are filed and assessed and taxes are paid or secured, and not together with the returns.

• Notify the CRA of the death as soon as possible by phone or Form RC4111.
• Confirm whether the deceased filed all prior-year returns.
• Gather slips, statements, and asset values at date of death.
• File the final return and decide with an accountant which optional returns help.
• Apply for a trust account number and decide whether a T3 is needed.
• Wait for assessments, pay or secure tax, then request the clearance certificate before distributing.

Late filing has a cost. The penalty on a late final return is 5% of the balance owing plus 1% for each full month late, to a maximum of 12 months, with compound daily interest on the unpaid amount. For T3 returns, an alternative penalty of $25 per day (minimum $100, maximum $2,500) may apply even with no balance owing.

Frequently asked questions