Filing taxes for a deceased person: T3 Trust Return and T1 Final Return.

When a loved one passes away, a legal representative must handle their taxes. The legal representative must complete certain tasks to close the person's file.

Experts recommend that individuals create an estate plan, including a last will and testament, before they pass away. Setting up a will allows a person to protect their assets. They can also choose someone they trust to carry out their final wishes as the estate executor.

If someone dies without a will, a court will choose someone to handle the person's belongings and money. This would likely be an immediate family member.

Being someone’s executor can take time and effort. This person must settle the deceased person's taxes, and pay debts, before distributing inheritances and estates.

What happens if a deceased person owes taxes in Canada?

When a person passes away and still owes taxes in Canada, their tax obligations do not cease. The executor or administrator of the deceased person's estate is responsible for filing a final tax return on their behalf. The final return includes any income earned up until the date of death, and any taxes owed must be paid from the assets of the estate.

What's the executor's responsibility regarding the deceased's taxes?

The executor must tell the Canada Revenue Agency (CRA) and/or Revenu Quebec and Service Canada when someone dies. They need to give them a death certificate to stop or move any government benefits, credits, or grants the person was getting.

Before distributing assets, the executor needs to obtain a clearance certificate. This certificate proves that all taxes owed by the deceased person have been paid to the government.

If an executor distributes assets without a clearance certificate, they'll be personally liable for all taxes owed by the deceased up to the amount distributed.

How do you prepare the final return?

After receiving the clearance certificate, the executor can prepare the deceased person’s final return. This document shows all the income received before death. The final return should include all usual income received prior to death, such as:

• Earnings from work.

• Pension or retirement payments.

• Employment insurance benefits.

• Investment earnings.

The final return must also include the deemed disposition of any capital property owned at the time of death. This will result in a capital gain or loss based on the cost to the deceased and the fair market value (FMV) at the time of death. The FMV of registered plans (such as RRSPs) must also be included in income unless they can be transferred to a spouse or other qualified beneficiary.

What's the deadline for filing the final return?

If the person’s death occurred between January 1 to October 31, the final return is due on April 30 of the following year. If the person passed away between November 1 to December 31, the due date is 6 months after the date of death.

Do I need to file a T3 Trust Return?

This would depend on if your loved one’s estate was held in a trust. An estate refers to all the money, property, and other assets owned by a person at the time of their death. This includes everything from real estate and personal belongings to investments and bank accounts. 

An individual may choose to put their estate in a trust to avoid probate, maintain control over their assets, plan for incapacity, protect beneficiaries, and ensure privacy. Trusts offer a flexible and efficient way to manage and distribute assets according to specific wishes.

If the estate was held in a trust, any income earned after the death of the deceased is reported on a T3 Trust Return.​

We recommend speaking with a Tax Expert. They can help determine whether you need to file a T3 return for the estate, or if any elective returns are necessary.

What's the deadline for filing the T3 Trust Return?

In the case of the estate, you’d get to pick the taxation year end. However, the latest it can be is one year from the date of death. So, if the deceased died on June 30, 2024, the latest year-end for the first year of the estate would be June 30, 2025, and the T3 return would be due 90 days after that – September 28, 2025.

Answers to common questions:

• Funeral expenses, probate fees, and fees to administer the estate are personal expenses and can’t be deducted.

• A death benefit (other than the CPP/QPP death benefit) of up to $10,000 is usually not taxable.

• Unless there is a surviving spouse, after a person’s death, any investments held in a tax-free savings account (TFSA) are no longer considered tax-free to the beneficiaries in the year they receive this income.

• The GST/HST credit payments paid for a period after the person died need to be repaid to the CRA.

If you have any questions about your tax filing obligations for a deceased loved one, H&R Block Tax Experts can help. Find an office near you to book an appointment today.