Interest and Dividends
Resulting from the sale of assets like Shares or Property
Generated from real estate owned by the deceased
Income earned from businesses posthumously
Payments paid to Estate after passing (Pension, insurance and other)
$2,500 payments most Canadian’s Estate receive after death
The trustee is responsible for managing and administering the trust or estate’s assets and finances, filing required tax returns, paying taxes and ensuring compliance with tax laws.
A trust/estate has to file a T3 return for a given year if it generates income and has tax payable. It also has to file a T3 return if demanded by the CRA. Other situations necessitating a T3 return include but are not limited to
The deadline for filing trust and estate tax returns in Canada is typically 90 days after the trust’s fiscal year-end. A trust typically has a calendar year-end.
Penalties for late or incorrect filings can include late-filing penalties which are typically 5% of taxes owed and potential legal consequences. It’s crucial to meet filing deadlines and provide accurate information. If the taxes are not paid by the due date, CRA will also impose late-payment interest based on the overdue amounts and the length of time they are outstanding.
Necessary documents may include:
– the decedent’s final personal income tax (T1) return
– a list of assets held by the decedent (and consequently by the estate) at death and their fair market values
– trust document/will
– records of income earned by the trust
– records of distributions made to the beneficiaries
Common types of taxable income for trusts and estates include:
Income earned by a trust or estate is typically taxed at the highest marginal personal tax rate. Exception would be for a graduated rate estate (GRE) whose income is taxed at graduated rates (similar to how an individual is taxed). A testamentary trust can only be a GRE for up to 36 months following the death of the individual.
The trust can take an income deduction for distributions of income made to beneficiaries. In that case, the beneficiaries need to report the income distributed on their own tax returns. Other deductions include carrying charges and interest expense (incurred to earn investment income).
Transferring assets to a trust or estate can have tax consequences. The contributor is deemed to have disposed of the asset with accrued gains.
Yes income splitting strategies may be possible, but there are specific rules and restrictions to be aware of. For example, an inter vivos trust can be established by a parent that pays income to their children/grandchildren while they go to school. When structured correctly, the income gets taxed in the hands of the children.
Effective tax planning can help minimize tax liabilities for trusts or estates. Strategies may include income splitting through distribution, qualifying for capital gains exemptions for any real estate disposed of, and the use of tax-efficient investment structures.
$1,500
$2,500
