Tax compliance for executors and trustees, plus key deadlines

Tax compliance responsibilities have changed over the past two years

I previously blogged about executors’ tax compliance responsibilities. In the past two-plus years since that blog, there have been a number of changes of which executors and trustees should be aware. This blog provides an overview of key tax compliance responsibilities of executors and trustees and highlights some of these recent changes.

Executors are generally responsible for income tax compliance for a deceased person and their estate, including preparing and filing all necessary tax returns in all relevant jurisdictions, paying any taxes owing and obtaining tax clearance certificates, if appropriate. Similarly, trustees of ongoing trusts, including inter vivos and testamentary trusts, are responsible for annual income tax compliance.

Ontario Estate Administration Tax (commonly known as probate fees) is a tax paid at the time a Certificate of Appointment of Estate Trustee With/Without A Will is applied for to the relevant Ontario Court, and it is not an income tax.

Canadian income tax returns and key filing dates

Executors are required to file the following Canadian income tax returns:

Returns for any taxation year prior to the year of death not previously filed;
A final or “terminal” return for the year of death covering the period from January 1 to the date of death; and
In certain cases, a T3 Trust Income Tax and Information Return (“T3 Return”) covering income received on the estate assets from the date of death to either the end of the calendar year or the estate year (365 days later), whichever period is elected by the executors.

To obtain certain income tax benefits for the estate, it will be necessary to ensure that a Graduated Rate Estate (“GRE”) designation is made for the estate in the estate’s first income tax filing.

For any year prior to death where the death occurred before the prior year’s return due date, the tax return is due on the later of the date the return is otherwise due or six months after death.

The following due dates apply for the terminal return (unless the deceased was carrying on a business, in which case different deadlines apply):

For deaths that occurred between January 1 to October 31 inclusive – April 30 of the year following death; or
For deaths that occurred between November 1 to December 31 inclusive – 6 months after the date of death.

For estates (that are not GREs) and trusts, the T3 Return is due 90 days after December 31, which is March 31 or March 30 if it’s a leap year. An executor may choose the year-end for a GRE, which can be any date within the first 12 months after the date of death, and the tax filing is due 90 days after the chosen year-end.

New reporting requirements were introduced for T3 Returns filed for 2023 tax years onwards which expanded the types of trusts obligated to file returns and the information that must be disclosed. Additionally, these new rules introduced a filing requirement for bare trust arrangements (discussed below).

Very recently (in August 2024), the Department of Finance released proposed amendments to the legislation regarding the new trust filing rules to narrow the scope of trusts required to file a T3 Return.

Vacant Home Tax Declaration and Underused Housing Tax Return

Executors and trustees should be aware of recent real estate-related tax filings.

Certain municipalities in Ontario have introduced Vacant Home Taxes, including Toronto, Ottawa, Hamilton, Windsor, and Sault Ste. Marie. A Vacant Home Tax declaration must be filed, and in Toronto this must be filed by April 30. Executors on behalf of an estate that holds real estate and trustees who hold real estate must file a Vacant Home Tax Declaration.

It is also worth mentioning the recent federal Underused Housing Tax Return, which took effect in early 2022. The return must be filed by April 30. The executor of an estate where the deceased was a Canadian permanent resident or citizen who owned Canadian real property, will be exempt from this tax filing. As well, due to recent changes, a specified Canadian trust will be exempt from this tax filing.

A specified Canadian trust is a trust whose beneficiaries that have a beneficial interest in a residential property are all, on December 31, excluded owners (i.e.: Canadian permanent residents or citizens) or specified Canadian corporations (i.e.: a Canadian corporation of which 10% or more of the votes or value of its shares is not owned by foreign individuals or corporation).

New reporting requirements for bare trusts

As noted above, the new trust reporting requirements introduced a filing requirement for bare trust arrangements. Canada Revenue Agency recently announced that it will not require bare trusts to file a T3 Return for the 2024 tax year, unless it makes a direct request for these filings. This is a continuation of the exemption granted in 2023. We will see what happens in 2025 and beyond.

Persons or directors and officers of corporations who hold title to an asset as bare trustee need to be aware of this potential tax filing obligation.

Foreign tax returns and compliance

It’s also important for executors to be aware of any foreign tax compliance and different filing due dates in different jurisdictions. If the deceased was resident in or a citizen of another jurisdiction, had assets in another jurisdiction or had another applicable tax affiliation, the executor must consider whether there are any foreign filing requirements and the relevant filing deadlines which in most cases will not match the deadlines in Canada.

For example, in the U.S., the estate tax filing deadline is nine months following the date of death (although it is possible to obtain a six-month extension if requested before the nine-month deadline).

For additional reading on estate and trust taxation, check out our Advisory.

We have highlighted some key tax compliance considerations for executors and trustees. Executors and trustees at the outset of their administration should seek professional advice from a tax advisor to assist with tax compliance for an estate or trust to ensure they are meeting their obligations.

Marly Peikes is a partner at O’Sullivan Estate Lawyers. Her practice includes all aspects of estate and trust planning, estate administration and estate dispute resolution. Marly focuses on assisting clients in organizing their financial affairs during their lifetime through creative estate planning strategies which balance each client’s unique needs with corresponding estate administration tax and income tax considerations, all while ensuring that each client’s objectives are achieved and optimized. This article originally appeared in the O’Sullivan Estate Lawyers blog. Used with permission.

Notes and Disclaimer

This article is the opinion of the writer and is meant to be general in nature, limited to the law of Ontario, Canada. It is not intended to provide specific personalized advice on any individual situation, including, without limitation, investment, financial, legal, accounting or tax advice. Before taking any action involving your individual situation, you should seek legal advice to ensure it is appropriate to your particular circumstances.

Image: iStock.com/fizkes

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