How Is a Trust Taxed After Someone Dies in Saskatchewan?

When someone dies, the tax picture splits in two. One part is the deceased's own final income tax return. The other is the tax on money the estate or trust earns after the death. If you are an executor, trustee or beneficiary in Saskatchewan, it helps to know which return covers what.

Income tax is a federal matter, so the same Canada Revenue Agency (CRA) rules apply in Saskatchewan as elsewhere in Canada. This article explains the main pieces in plain terms. Your facts will matter, so an accountant or lawyer should confirm how they apply to a particular estate.

This article covers the law of Saskatchewan.

Two returns, two sets of rules

The deceased's final return reports income up to the date of death. Income that the estate earns after death, for example interest or investment income on estate money, is reported separately on a T3 trust return.

Notice that the estate's year-end is not automatically the date of death. That choice is explained below.

The T3 return and the graduated rate estate

Income the estate earns after death is reported on a T3 trust return, and the estate may qualify for a status called a graduated rate estate. A graduated rate estate can choose any year-end up to one year after death. That flexibility lets the executor pick a reporting period that suits the estate.

The T3 return is due 90 days after the estate's year-end. Because the year-end is something the executor can often choose, it is worth deciding it with an accountant before the first T3 is prepared.

Whether tax on trust income is paid by the estate or by a beneficiary depends on the facts, including whether income stays in the estate or is paid out, and what the will says. The rules on this are detailed, so ask an accountant to confirm how it works for your estate.

What happens on the final return

Much of the tax on an estate lands on the deceased's final return rather than the T3. On death, the person is treated as having sold all of their property just before death at fair market value, and any capital gain or loss is reported on Schedule 3 of the final return. This is a federal income tax, not an inheritance tax.

• Spouse rollover: property passed to a surviving Canadian-resident spouse or common-law partner, and vested within 36 months, may not result in a gain or loss on the final return, and the legal representative can elect out.
• Principal residence: gains may be wholly or partly exempt, but the home must be designated using Schedule 3 and Form T1255.
• RRSP or RRIF: the fair market value of an unmatured RRSP at death is included in the deceased's income on the final return, with a RRIF reported on its own line.
• RRSP to a spouse: if it is transferred to the spouse's RRSP by the end of the year after death, the amount is not included in the deceased's final return, and the spouse reports it and deducts the transfer.

If the deceased or their spouse ran a business, the filing date may be June 15 of the following year for a death from January 1 to December 15, but payment is still due on the regular date.

Late filing and personal liability

Payment of tax on the final return is due on the same date as the regular filing deadline, and this stays true even where a self-employed person's filing date is June 15. Late filing with a balance owing attracts a penalty of 5% plus 1% per full month, up to 12 months.

Executors also carry a risk of their own. If a legal representative distributes assets before getting a CRA clearance certificate and tax is still owing, they can be held personally liable up to the value of the assets distributed. Form TX19 requests the certificate only after returns are filed, notices of assessment are received and tax is paid, and assessment can take up to 120 days.

Final distribution cannot occur until the clearance certificate is received. That is one reason estates often take longer than people expect.

What to do next

• Collect the deceased's recent tax returns, notices of assessment, and statements for investments, RRSPs and RRIFs.
• Work out the date of death, since it affects the final return deadline.
• List property that may trigger a capital gain, including real estate and investments.
• Ask an accountant to help choose the estate's year-end and prepare the T3 return.
• Check whether a spouse rollover or a principal residence designation applies.
• Hold back distributions until you have a CRA clearance certificate.

If the estate is large, owns a business, or may be insolvent, speak with a lawyer or accountant early. They can confirm how the rules apply and help you avoid personal liability.

Frequently asked questions