- Interest that accrued up to the date of death belongs on the deceased's final return, while interest accrued after death goes on the estate's T3.
- Income paid or payable to beneficiaries is generally deducted by the estate and taxed to them, while income the estate keeps is taxed in the estate.
- An amount is payable to a beneficiary only if it was paid in the year or the beneficiary had a right to enforce payment in that year.
- T3 returns, slips and the summary are due 90 days after the estate's tax year-end.
Many executors open a bank account for the estate and then notice it is earning interest. The interest may be small, but it raises a real question: who reports it, the estate or the people who will eventually inherit?
The answer depends on when the interest was earned and whether it was paid out or kept in the estate. This article walks through the general rules so you know what to ask your accountant.
Before death and after death are treated differently
Interest accrued to the date of death goes on the deceased's final T1 return, while interest accrued after death goes on the estate's T3 return. If an account earned interest across the date of death, the bank statements or a bank letter will help split the amount.
The final return has its own deadline. If death was between January 1 and October 31, it is generally due April 30 of the next year. If death was between November 1 and December 31, it is due six months after death.
Who reports the interest earned by the estate
For income earned by the estate, the general approach is this: income paid or payable to beneficiaries is generally deducted by the estate and taxed to the beneficiaries, and income the estate keeps is taxed in the estate unless a designation is made under s. 104(13.1) or 104(13.2) of the Income Tax Act.
| Situation | Who generally reports it |
|---|---|
| Interest accrued up to the date of death | The deceased, on the final T1 |
| Interest earned after death and kept in the estate | The estate, on the T3 |
| Interest earned after death and paid or payable to a beneficiary | Generally the beneficiary, with the estate deducting it |
A designation under s. 104(13.1) or 104(13.2) can change who is taxed on income, so it is a decision to make with an accountant rather than a default.
What "payable" really means
Executors sometimes assume that writing a beneficiary's name next to an amount in the estate's books is enough. Under s. 104(24) of the Income Tax Act, an amount is payable to a beneficiary in a year only if it was paid in that year or the beneficiary had a right in that year to enforce payment. An allocation on the estate's books alone does not make it payable.
This matters because the estate cannot simply assign interest to whichever beneficiary has the lowest tax rate. Keep a clear paper trail of what was paid and when, and ask your accountant how the estate's wording and actual payments line up.
Filing the T3 and handing out slips
A T3 return is required for an estate when total income is more than $500, or when more than $100 is allocated to any one beneficiary. An estate making a capital distribution must file even if income is $500 or less. Those thresholds can be updated, so confirm them for the year in question.
T3 returns, T3 slips (sent to each beneficiary's last known address) and the T3 Summary are all due 90 days after the estate's tax year-end. For a graduated rate estate, the first T3 can have a year-end set at any date up to one year after death. A testamentary trust that is not a graduated rate estate has a December 31 year-end.
To be a graduated rate estate, the estate must meet specific conditions, including being a testamentary trust, using the deceased's social insurance number on its returns, and being the only estate so designated. It qualifies for no more than 36 months after death.
What to do next
- Ask the bank for statements showing interest earned before and after the date of death.
- Record every payment to a beneficiary with its date, since payment or an enforceable right to payment is what counts.
- Decide with your accountant what the estate's tax year-end will be and diarize 90 days after it.
- Check whether total income or allocations pass the T3 thresholds.
- Before final distribution, find out about a CRA clearance certificate, because distributing without one can make the representative personally liable for unpaid tax up to the value distributed.
If the estate is large, has several beneficiaries or is in dispute, get an accountant involved early. A lawyer can help with the duties owed to beneficiaries.
Frequently asked questions
Do beneficiaries always report estate interest?
No. Income paid or payable to beneficiaries is generally deducted by the estate and taxed to them, but income the estate keeps is taxed in the estate unless a designation is made.
Does interest from before the date of death go on the T3?
No. Interest accrued to the date of death goes on the final T1, and interest accrued after death goes on the estate's T3.
Is it enough to record a share of income for a beneficiary in the estate's books?
Not on its own. An amount is payable only if it was paid in the year or the beneficiary had a right in that year to enforce payment.
When are the T3 slips due?
T3 slips, the T3 return and the T3 Summary are all due 90 days after the estate's tax year-end. The slips go to each beneficiary's last known address.
Sources
- CRA – Filing and payment due dates (someone who died) — canada.ca
- Justice Laws – Income Tax Act s. 248(1) — Justice Laws (federal)
- CRA – T3 Trust Guide — canada.ca
- Justice Laws – Income Tax Act s. 104 — Justice Laws (federal)
- CRA – Apply for a clearance certificate — 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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