How to File a T3 Trust Return for an Estate in Ontario

Once someone dies, the estate becomes a taxpayer of its own. If the estate earns interest, receives payments or sells property after the date of death, the executor usually has to report it on a T3 return, separate from the deceased's final return.

This article explains when a T3 is required, what goes on it, how the deadline works and how graduated rate estate status affects timing. Details such as optional elections and special year-end choices vary, so your accountant or lawyer should confirm what fits your estate.

When is a T3 return 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. Some amounts, such as the CPP/QPP death benefit, may instead be reported by a beneficiary.

The T3 Trust Guide says a return is required when, among other conditions, the trust has any of the following:

• tax payable
• a disposition, or a deemed disposition, of capital property
• income allocated to beneficiaries, with total income from all sources of more than $500

A return may not be needed if the estate was distributed right after the death and earned no income before then.

What goes on the return and who pays the tax

The estate reports its income after death, and any capital gain from selling property is reported on line 1 of the T3. That gain is generally the sale price minus the fair market value reported on the final return, plus disposition costs.

Amounts the estate allocates to beneficiaries are deducted from the trust's income and generally included in the beneficiaries' income, reported to them on T3 slips with a T3 Summary. Income the estate keeps is taxed in the estate.

This is separate from the final T1 return, which reports income and property gains up to the date of death.

T3 deadlines and late-filing penalties

The T3 return 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 a graduated rate estate ceases to exist, its tax year ends on the date of the final distribution of assets, and the final T3 and any balance owing are due no later than 90 days after that date.

One T3 late-filing penalty is $25 a day for each day the return is late, with a minimum of $100 and a maximum of $2,500. How this penalty applies to your estate depends on your situation, so it is worth confirming with a lawyer. Since the year-end you choose sets the due date, talk to your accountant before you pick one.

Why graduated rate estate status matters

Since the 2016 tax year, a graduated rate estate is taxed at graduated rates. Estates that are no longer graduated rate estates generally pay the flat top federal rate.

A graduated rate estate is the estate that arose on and as a consequence of an individual's death, for up to 36 months after the death. It must designate itself as the graduated rate estate in its first T3 return. Our separate article on graduated rate estate status covers the conditions in more detail.

What to do next

• Confirm you are the legal representative and have the death certificate and a complete copy of the will ready for CRA.
• List the income and payments the estate has received since the date of death.
• Note any sale of property after death and the fair market value used on the final return.
• Decide with your accountant whether the estate will be a graduated rate estate and what year-end to use.
• Before distributing property, remember the legal representative must obtain a clearance certificate from the Minister.

Frequently asked questions