How to File Estate Tax Returns in Ontario Step by Step

Filing tax returns for someone who has died can feel like a long list with no obvious order. As an estate trustee in Ontario, you are usually the person who deals with CRA, and a few early steps make the rest much easier.

This article lays out the process in the order most estates follow. Your estate may need fewer steps or more, so treat it as a map and confirm details with a lawyer or accountant.

Step 1: Confirm your authority and contact CRA

The legal representative is usually the executor named in the will, and balances owing to CRA are paid out of the estate's assets. To deal with CRA, you send a copy of the death certificate or a funeral director's statement of death, and a complete copy of the will naming the executor. If there is no will or executor, Form RC552, Register as Representative for a Deceased Person, is used.

Part of an estate trustee's job is winding up the deceased's affairs and paying taxes, bills and debts before distributing what is left.

Step 2: File the final T1

A final T1 Income Tax and Benefit Return must be filed for every person who dies. It reports income and property gains up to the date of death. Income paid periodically, such as interest, rent or annuity payments, is treated as accruing daily, and the part accrued to the date of death goes on this return.

Late filing carries a penalty of 5% of the balance owing, plus 1% for each full month late up to 12 months, and interest accrues on unpaid amounts.

Step 3: Consider optional returns

Filing optional returns can lower total tax, because certain credits and deductions can be claimed more than once or split between returns, and each return starts again at the lowest tax brackets. Possible optional returns include:

• Rights or things: income earned but not received before death, such as unpaid salary or vacation pay, which can be reported on a separate return. It is due by the later of one year after death and 90 days after CRA sends the Notice of Assessment or Reassessment for the final return.
• Partner or proprietor: for a business whose fiscal year does not end on December 31.
• Graduated rate estate income: income from another person's graduated rate estate between its year-end and the date of death.

Next, file the estate's T3 return if required

A T3 Trust Income Tax and Information Return is generally filed for the estate if it realizes any gain or receives any payments after the death. A return may not be needed if the estate was distributed right after the death and earned no income before then. If the estate sells the home or other property, the gain is generally the sale price minus the fair market value reported on the final return, plus disposition costs.

The T3 and any balance owing are due no later than 90 days after the trust's tax year-end. A graduated rate estate can choose a non-calendar year-end, up to one year after the date of death. When an estate is wound up, its tax year ends on the date of the final distribution, and the final T3 is due within 90 days of that date.

Step 5: Get a clearance certificate, then distribute

Before distributing property, a legal representative must obtain a certificate from the Minister confirming that tax amounts are paid or security has been accepted. A representative who distributes without one is personally liable for unpaid amounts up to the value of what was distributed.

Request it on Form TX19 after all returns have been filed and assessed and amounts owing have been paid or secured, not at the same time as the returns. CRA acknowledges the request within 45 days, and the assessment can take up to 120 days if the documents are complete.

• Gather the will, proof of your status, and a list of assets with date-of-death values.
• Prepare a statement of distributions already made and a plan for the rest.
• Keep records of every return filed and every payment made.
• Ask a lawyer or accountant if the estate may not have enough assets to pay its tax, since a certificate generally cannot be obtained then.

Frequently asked questions