When a person thinks of a trust account, they often think of the negative connotation of a “trust fund baby” – a spoiled young adult living an idle life on investments.
A trust account can apply in other respects as well. You can create a trust account after a person has passed away. It's not flashy or glamorous. It's a mechanism to hold estate funds generated after a person has passed away.
What is a T3 Trust Return for a Deceased Person?
A T3 is the reporting mechanism for trust accounts. It's an income tax return to calculate tax liability and an information return to demonstrate amounts paid to beneficiaries.
There are two types of trusts and various forms are required to support the returns for such trusts. You must request specific information before filing a T3 return, and the deadlines and penalties differ from regular tax returns.
If you’re an executor looking for information regarding T3 returns for deceased persons, look no further. This post will provide you with the basic information required to get you started; however, it’s always best to consult with a professional regarding complex matters such as trust accounts. Let’s get into it!
What Are the Two Types of Trusts?
There are two types of trusts – a testamentary trust and an inter vivos (meaning “between the living”) trust.
A testamentary trust is created as a result of a person's death. It’s regulated based on a deceased's will as well as by provincial or territorial law.
An inter vivos trust is not a testamentary trust and includes trusts created by living individuals. Inter vivos trusts include personal trusts, alter ego trusts, spousal or common-law partner trusts, graduated rate estate trusts, etc.
How Do You File a T3 Return?
It's a good idea to ensure that you have all the required information before completing your T3 return, including but not limited to the following:
Trust Account Number
Residence of Trust
Trustee Information
Trust information, i.e. is the trust resident on designated Aboriginal settlement lands, etc.
Type of Trust
What is a Trust Account Number?
A trust account number is an identifier starting with the letter "T" followed by an eight-digit number.
How Do You Apply For a Trust Account Number?
As an executor, you can apply for a trust account number in various ways, including:
1. Using the Trust Account Registration Service within My Account, My Business Account, and Represent a Client (using Form T3APP, T3 Application for Trust Account Number); or
2. Submitting a completed T3APP via mail.
A signed copy of the trust document or will is also required to process an application for a trust account number and must be submitted with the first T3 return.
What Else is Filed with a T3 Return for Deceased Persons?
Depending on your trust type and what funds were paid or allocated to the trust, you will need to submit supporting documents along with the T3 return. These include but are not limited to the following:
A T3 Slip and T3 summary to indicate amounts allocated to beneficiaries;
A T4 Slip and T4 summary to indicate if the trust paid executor or trustee fees, etc.
Are T3 Returns Always Required?
A T3 return may not have to be filed if the estate is distributed immediately after the person dies or if the estate did not earn income before the distribution. For more information regarding when you must file a T3 return, refer to CRA’s guide under the sub-title “Who should file”.
Deadline for Filing T3 Return
The tax deadline for a trust depends on the trust's tax year-end. Generally, you must file the T3 return and related documents 90 days after the trust's tax year-end. Balances owing should also be paid within 90 days of the trust's tax year-end.
Penalties For Not Filing
If you do not file the T3 return by the required due date, a late-filing penalty of 5% of the unpaid tax plus 1% of the unpaid tax will be charged for each full month the T3 return is late, to a maximum of 12 months. Increased penalties will apply if the CRA has issued a demand to file.
Trust Accounts Can Be Complicated
Although this post covered a lot of information that you will require regarding the types of trusts, what is required to file a T3 return for a deceased person, as well as the deadlines and penalties for same, it’s wise to consult with a professional when dealing with something as complex as tax returns for trust accounts. Contact us today to find out how we can help you file your next T3 return!