T3 (Trust Income Tax and Information Return)

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T3 (Trust Income Tax and Information Return)

Postby yyzvoyageur » 25 Jan 2012 13:22

Must a T3 be completed for an estate in every case? If the estate was small and everything went to the sole beneficiary, is it still necessary to complete a trust income tax return for the estate?

Along those same lines, I understand that the CPP death benefit can be claimed by the estate. Could that alone make it worthwhile to complete a return for the estate if the beneficiary has high income (tax savings)?

Finally, is software like Turbotax able to handle such tax returns?
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Re: T3 (Trust Income Tax and Information Return)

Postby DavidR » 25 Jan 2012 15:11

From the CRA's T3 Trust Guide http://www.cra-arc.gc.ca/E/pub/tg/t4013/t4013-10e.pdf

Tax tip
You may not have to file a return if the estate is
distributed immediately after the person dies, or if the
estate did not earn income before the distribution.
In these cases, you should give each beneficiary a
statement showing his or her share of the estate.
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Re: T3 (Trust Income Tax and Information Return)

Postby Norbert Schlenker » 25 Jan 2012 20:16

Absolutely worthwhile filing a T3 if it lets a sole beneficiary avoid high marginal taxes on the amount.

No consumer level tax software will handle a T3. It's not that complicated, just laid out differently than a T1. Do it by hand.
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Re: T3 (Trust Income Tax and Information Return)

Postby OhGreatGuru » 26 Jan 2012 15:09

The CPP Death Benefit is unfortunately considered as income received by the estate, which is another reason why you have to file a T3 return. The executor should receive a a T4A(P) in Jan/Feb for this. (A bloody nuisance frankly, as for a deceased person of simple means this may be the only taxable income to the estate. But at least it will be taxed at a low rate that way, and not in the hands of a beneficiary. But it delays final settlement of the estate, because CRA is very slow to deal with estate returns.) One of the executor's final steps should be applying for a Clearance Certificate, which you can't do if there is an outstanding T3 to be filed.

a) For the pittance that is involved in the CPP death benefit, I don't know why they insist on taxing it - talk about taxing your widows and orphans.
b) Considering that its purpose is to facilitate a decent burial, and considering the cost of funeral services these days, I don't understand why they don't simply allow the family to sign it over to the funeral home, and have it bypass the estate.
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Re: T3 (Trust Income Tax and Information Return)

Postby izzy » 26 Jan 2012 17:54

OhGreatGuru wrote:The CPP Death Benefit is unfortunately considered as income received by the estate, which is another reason why you have to file a T3 return. The executor should receive a a T4A(P) in Jan/Feb for this. (A bloody nuisance frankly, as for a deceased person of simple means this may be the only taxable income to the estate. But at least it will be taxed at a low rate that way, and not in the hands of a beneficiary. But it delays final settlement of the estate, because CRA is very slow to deal with estate returns.) One of the executor's final steps should be applying for a Clearance Certificate, which you can't do if there is an outstanding T3 to be filed.

a) For the pittance that is involved in the CPP death benefit, I don't know why they insist on taxing it - talk about taxing your widows and orphans.
b) Considering that its purpose is to facilitate a decent burial, and considering the cost of funeral services these days, I don't understand why they don't simply allow the family to sign it over to the funeral home, and have it bypass the estate.

and
c) The costs of administration could easily exceed the potential revenue-not that such considerations are generally taken into account when setting tax policy,or so it often seems!
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Re: T3 (Trust Income Tax and Information Return)

Postby DavidR » 26 Jan 2012 18:01

OhGreatGuru wrote:The CPP Death Benefit is unfortunately considered as income received by the estate, which is another reason why you have to file a T3 return.

CRA has a long standing practice of letting the person who received the death benefit report the amount (and other income of the estate too, such as interest on cash balances held while the estate is being administered) on their T1 so that no T3 is required.
Of course you can still choose to do a T3 if you want to do one.
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Re: T3 (Trust Income Tax and Information Return)

Postby yyzvoyageur » 22 Feb 2012 14:35

So I'm working through the T3RET form now. So far, so good, but a couple of questions:

1. I've claimed only the $2500 CPP death benefit as income in the trust. No other income was claimed on the T3RET. Since the sole beneficiary was the spouse, everything was effectively handed over to the beneficiary right away. Any other income (interest, dividends, etc.) will be claimed on the deceased's final T1, and, for amounts incurred after the date of death, on the T1 of the survivor. Any problems there?

2. Do I have to complete schedule 9 (Income Allocations and Designations to Beneficiaries) and/or do I have to complete a T3 tax slip to show where the $2500 ended up? I'm a bit confused on this point. As far as CRA would be concerned, there is now $2500 (minus $501.25 in taxes) in this trust. I've indicated a trust wind-up date of 2012-12-31, but do I have to somehow show what happened to this money after the trust ended?
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Re: T3 (Trust Income Tax and Information Return)

Postby DavidR » 22 Feb 2012 17:59

How much tax would the beneficiary pay if you put the $2500 on his/her return? (CRA has a long standing practice of....)

Then you'd have no T3 to file, and no wind-up date to worry about...
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Re: T3 (Trust Income Tax and Information Return)

Postby yyzvoyageur » 22 Feb 2012 21:26

DavidR wrote:How much tax would the beneficiary pay if you put the $2500 on his/her return? (CRA has a long standing practice of....)

Then you'd have no T3 to file, and no wind-up date to worry about...


Tax payable on the T3 is $501.25. If taxed at the beneficiary's marginal rate, it's more like $825. Plus, there'd be a loss of $375 in the form of OAS repayment. It's nearly $700 in total that'll be saved.
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Re: T3 (Trust Income Tax and Information Return)

Postby DavidR » 23 Feb 2012 14:32

yyzvoyageur wrote:So I'm working through the T3RET form now. So far, so good, but a couple of questions:

2. Do I have to complete schedule 9 (Income Allocations and Designations to Beneficiaries) and/or do I have to complete a T3 tax slip to show where the $2500 ended up? I'm a bit confused on this point. As far as CRA would be concerned, there is now $2500 (minus $501.25 in taxes) in this trust. I've indicated a trust wind-up date of 2012-12-31, but do I have to somehow show what happened to this money after the trust ended?

A T3 slip is only required if you are allocating income. If the trust is paying tax on the $2500 then it is not allocating income. The $1,998.75 left over is not taxable a second time. The trust can give it to the beneficiary. :)
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