- Income earned up to the date of death goes on the final return even if it is paid after death, unless it is put on an optional return.
- Income the estate earns after death is reported on the T3 return, not the final T1.
- Deemed capital gains and RRSP or RRIF amounts are generally reported on the final return even if nothing was sold or paid out, but a transfer to a surviving spouse or common-law partner can change that.
As an executor, you will probably deal with two different tax returns. One covers the deceased person up to the date of death, and the other covers the estate afterward. The hard part is usually deciding which income belongs on which return.
This guide sorts income by timing and by type. It covers federal tax rules that apply across Canada. The rules have exceptions, so an accountant or lawyer can confirm how they apply to a particular estate.
This article covers Canadian federal tax law, which applies in every province.
The basic dividing line: the date of death
Income earned up to the date of death goes on the final return, even if you receive it after death, unless it is filed on an optional return. Income the estate earns after death is reported on the T3 return, not the final T1.
The test is when the income was earned, not when the cheque arrived. A payment that lands in the estate account three months after death may still belong to the deceased's final return.
The executor is usually the legal representative. In Québec, that person is called the liquidator. They are responsible for making sure returns are filed and balances owing are resolved.
Income that goes on the final T1
- Income earned up to the date of death, even if received afterward.
- The part of interest, rent, royalties and annuities that accrued before death. These periodic amounts are treated as accruing daily up to the date of death, and the part accruing to death is included in the deceased's income for the year of death.
- Deemed capital gains. Each capital property is deemed sold immediately before death at fair market value, and the gain or loss is reported on Schedule 3 and line 12700 even if the property is not sold.
- Unmatured RRSP value. The deceased is treated as receiving the fair market value of all plan property just before death, and the T4RSP box 34 amount goes on line 12900.
- RRIF value. The fair market value (T4RIF box 18) is included unless the spousal conditions are met.
Some of these have exceptions. Property passing to a surviving spouse or common-law partner who was a Canadian resident can roll over without a gain or loss if it vests in them within 36 months of death. If all RRSP plan property is transferred directly to the survivor's RRSP, RRIF, PRPP, SPP or an eligible annuity before the end of the year after death, no T4RSP is issued in the deceased's name.
Income that goes on the estate's T3
Income the estate earns after death is reported on the T3. That covers pension, investment, business, farming and rental income, including earnings from investments held in a TFSA before death.
A T3 return is needed if the estate earns income after death or distributes property to beneficiaries. It is due 90 days after the trust's tax year-end, or after final distribution if the trust ceases to exist.
A graduated rate estate (GRE) may choose any year-end up to one year after the date of death, while a non-GRE testamentary trust has a December 31 year-end. GRE status ends at 36 months after death.
A late T3 return carries an alternative penalty of $25 per day even with no balance owing, with a minimum of $100 and a maximum of $2,500.
Special cases: CPP, OAS, RRSPs and TFSAs
| Item | Where it generally goes |
|---|---|
| CPP or OAS for the month of death | Estate is entitled to it; can be reported on the final return or an optional return |
| CPP or OAS paid after the month of death | Must be returned, or repaid if cashed |
| CPP/QPP death benefit as the estate's only income | Beneficiary can report it on their own T1 for the year received, if no T3 is otherwise required |
| RRSP or RRIF growth after death | Income of the beneficiary or estate when received |
| TFSA value at death | Deceased reports no TFSA income; the value is generally not taxable to beneficiaries |
CPP and OAS are cancelled separately through Service Canada, because the CRA notification does not cancel them.
For RRSPs and RRIFs, increases in value after death are income of the beneficiary or estate when received, and a T4RSP or T4RIF is issued. If distributions total less than the value included in the deceased's income, the legal representative can request the difference be deducted on the final return, if the final distribution is made by the end of the year after death.
For TFSAs, the rules depend on whether the person is a successor holder, a designated beneficiary, or the estate, and on the type of TFSA. Earnings after death can be taxable in some cases. Confirm the details before you distribute.
What to do next
- Notify the CRA of the death and confirm your authority as legal representative.
- List every income source and mark the date it was earned relative to the date of death.
- Gather slips such as T4, T5, T4A(P) and T4(OAS).
- Check whether optional returns, such as rights or things, could reduce tax.
- Decide whether a T3 is needed, and choose the estate year-end if it is a GRE.
- Get a clearance certificate before distributing property, since distributing without one can make you personally liable.
If you are unsure where an item belongs, an accountant or lawyer can review the facts before you file.
Frequently asked questions
Does income paid after death always go on the T3?
No. Income earned up to the date of death goes on the final return even if it is received after death, unless it is filed on an optional return. Only income the estate earns after death goes on the T3.
Is interest that was owing at death the deceased's income?
Partly. Periodic amounts such as interest, rent, royalties and annuities are treated as accruing daily up to the date of death. The part accruing to death is included in the deceased's income for the year of death.
When is a T3 return due?
It is due 90 days after the trust's tax year-end, or after final distribution if the trust ceases to exist. A graduated rate estate may choose any year-end up to one year after the date of death.
Can a beneficiary report the CPP death benefit themselves?
Yes, in one case. If the CPP/QPP death benefit is the estate's only income and no T3 is otherwise required, the beneficiary can report it on their own T1 for the year received.
Sources
- CRA – Filing and payment due dates (someone who died) — canada.ca
- CRA – What returns you need to file — canada.ca
- CRA – Represent someone who died — canada.ca
- CRA – Notify the CRA of a date of death — canada.ca
- CRA – Brochure: Doing taxes for someone who died — canada.ca
- Service Canada – Cancel CPP and OAS after a death — canada.ca
- CRA – T4011 Preparing Returns for Deceased Persons (cancelled) — canada.ca
- CRA – Report income, transfers and dispositions — 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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