When someone dies in Canada, their tax world does not stop on the same day. There is income that stops at the date of death, income that keeps going in the estate, and in some cases special one time amounts that need their own space.
This guide explains the three main returns the Canada Revenue Agency uses after a death:
- the Final T1 return
- the optional T1 returns
- the T3 estate return
You will see what each return is for, who files it, and how they fit together. For current deadlines, tax rates and detailed rules, always confirm on the official Canada Revenue Agency site.
The quick take
- The legal representative or executor must file a Final T1 Income Tax and Benefit Return for every person who dies in Canada
- In some situations they may also file up to three optional T1 returns to move certain types of income to separate returns, which can reduce tax for the year of death
- If the estate earns income after the date of death, a T3 Trust Income Tax and Information Return is usually required until the estate is wound up
- Deadlines for each return depend on the date of death, the type of income and whether there was a business. CRA lists the current rules on its filing and payment due dates page
- Before distributing the estate, the representative will usually want CRA’s clearance certificate, which confirms that required returns are filed and taxes have been paid
This article is general information, not tax or legal advice. For specific questions, a conversation with an accountant or tax professional is recommended.
At a glance: Final T1, optional T1s and the T3 estate return
Here is a simple way to see how the pieces fit.
- Final T1 return
- Covers income and certain gains up to the date of death
- Filed once for every person who dies
- Includes most income and claims for credits and deductions
- Optional T1 returns
- Up to three different optional returns, used only if there is eligible income
- Move certain types of income off the Final T1 and into separate returns
- Can allow some credits or deductions to be used more than once
- T3 estate return
- Covers income earned by the estate itself after the date of death
- Filed for each year the estate earns taxable income and has not yet been fully distributed
- Often treated as a graduated rate estate for a limited time, with its own rules
Think of it this way:
- Before the date of death belongs on the Final T1 or optional T1s
- After the date of death belongs on the T3 estate return, unless the income can be reported directly by a beneficiary
Final T1 return: income up to the date of death
What the Final T1 is for
The Final T1 is the last personal income tax return for the person who died. CRA says a Final T1 return must be filed for every deceased person.
It is used to report:
- employment income up to the date of death
- pension income and benefits up to the date of death
- investment income and capital gains up to the date of death
- certain increases in the value of property and investments that are treated as if they were sold at death
- credits and deductions the person can still claim in their final year
The Final T1 uses the tax package for the year of death and for the province or territory where the person lived at the time of death.
Who is responsible
CRA refers to the legal representative. This can be:
- the executor named in a will
- an administrator appointed by a court where there is no will
- in some cases, an individual who has taken responsibility for the estate
This person is responsible for filing the Final T1, paying tax from estate assets, and keeping records.
Key steps for the Final T1
- Notify CRA of the death
- Report the date of death and ask CRA to update its records
- Get access to tax information
- Provide proof of death and proof of authority so CRA can speak to the representative and share required tax records
- Gather income and asset information
- Employment and pension slips
- Bank and investment statements
- Details of property, vehicles and other assets
- Information on registered plans and insurance
- Prepare and file the Final T1
- Use the appropriate tax package
- Include income up to the date of death
- Claim relevant credits and deductions
- Pay tax from the estate
- If there is a balance owing, it is paid from estate assets, not from the representative’s personal funds
Due dates for the Final T1 depend on when the person died and whether they or their spouse or partner carried on a business. CRA lists the current due date rules on the filing and payment due dates page.
Optional T1 returns: when extra returns can reduce tax
CRA allows up to three optional T1 returns in addition to the Final T1. You do not have to file them. They are a planning tool when there is eligible income.
Optional returns matter because certain credits and deduction amounts can be:
- claimed more than once
- split between returns
- matched against specific types of income
This can reduce or even eliminate tax that would otherwise be paid on the Final T1.
The three types of optional T1 returns
From CRA’s guidance, the optional T1 returns are:
- Return for Rights or Things
- For income that was earned before death but not received until afterward
- Examples include:
- unpaid salary or commissions for a period that ended before death
- certain pension or benefit arrears
- some types of business inventory and work in progress
- Return for a Partner or Proprietor
- For some business income earned between the end of a business year and the date of death
- Used if the person was a sole proprietor or partner and the business year end was not December 31
- Return for Income from a Graduated Rate Estate of another person
- For income the deceased received from certain types of estates or trusts between that estate’s year end and the date of death
Each optional return has its own rules about which income can be included and which tax package to use. The CRA page on optional T1 returns explains the current details, examples and forms.
When optional returns are worth considering
Optional T1 returns are most useful when:
- the deceased had significant unpaid income shortly before death
- there was a business with a non calendar year end
- the person received income from another estate or trust
- the Final T1 shows a high income in the year of death, and there is an opportunity to spread that income across more than one return
Because these returns are technical and have specific timelines, many representatives speak with a tax professional before deciding whether to use them. CRA also sets separate filing deadlines for optional returns, which are listed on its filing and payment due dates page.
T3 estate return: income after the date of death
What the T3 estate return is for
After the date of death, the person’s belongings, property, assets and debts become their estate. That estate can continue to earn income. CRA explains that a T3 Trust Income Tax and Information Return may be required for this period.
The T3 estate return is used to report:
- investment income the estate earns after death
- capital gains if estate assets are sold
- rental or business income if the estate continues to hold property or a business
- certain other amounts received by the estate, such as some employer death benefits
In many cases, there will be both:
- a Final T1 return for income up to the date of death, and
- one or more T3 returns for income earned while the estate is being administered
When a T3 is usually needed
CRA’s guidance notes that a T3 estate return is generally required when:
- the estate earns income after the date of death
- there are gains realized on estate property
- amounts are received by the estate that are not taxed directly in a beneficiary’s hands
A T3 may not be needed if all post death income is reported directly by beneficiaries. CRA’s example is the CPP or Quebec Pension Plan death benefit, which can in some cases be reported on a beneficiary’s return instead of the T3.
Graduated rate estate status
Most estates qualify to be treated as a graduated rate estate for a limited period after death if they meet CRA conditions.
Graduate rate estate status can allow:
- use of the same graduated tax rates as individual taxpayers
- flexible treatment of eligible charitable donations between the estate and the Final T1
This treatment is time limited and has specific conditions. The CRA T3 guidance explains how an estate designates itself as a graduated rate estate and how long that status can last.
Filing T3 returns
A T3 return is filed for each year that:
- the estate exists, and
- the estate earns income that is taxable in the estate
This continues until the estate’s property is fully distributed and the estate is wound up. At that point, a final T3 is filed.
Due dates for T3 returns are based on the estate’s tax year end, often set by the representative in the first T3 return for a graduated rate estate.
Timeline and order of filing
The exact timing depends on the date of death and the estate, but the work often follows this pattern.
- Notify CRA and gain access
- Report the date of death and your role
- Provide documents so CRA can share information with you
- File any unfiled T1 returns for years before the year of death
- If earlier returns were missed, CRA expects those to be filed as well
- File the Final T1 and any optional T1 returns
- Report income up to the date of death
- Decide whether optional T1 returns would be helpful
- File T3 estate returns while the estate is being administered
- Report estate income for each year until the estate is ready to wind up
- Apply for a clearance certificate
- Ask CRA to confirm that all required returns are filed and taxes are paid before you distribute remaining assets to beneficiaries
Documents checklist for tax returns after a death
You can adapt this list to your situation and share it with a tax professional if you are working with one.
Core identification and authority
- death certificate or other proof of death
- will and documents proving your authority as executor or administrator
- Social Insurance Number of the person who died
- your Social Insurance Number as representative
- contact details for you and for key beneficiaries
Income and assets up to the date of death
- employment and pension slips
- statements for bank accounts, investments and registered plans
- records of rental or business income
- details of property, vehicles and other significant assets
- records of debts and liabilities
Estate income after the date of death
- estate bank account statements
- investment and interest records for the estate
- details of any property sales or estate business income
- notices of any employer death benefits or other amounts paid to the estate
CRA and tax documents
- prior years’ tax returns for the person who died, if available
- copies of all filed returns and assessments related to the Final T1, any optional T1s and T3 returns
- correspondence from CRA about the estate or the deceased
Keeping scanned copies in a secure folder can make follow up with CRA and with professionals much easier.
A simple way to decide what to do next
If you are the representative, three questions can help you decide which tax step to take first.
- Have previous years’ returns been filed
- If not, note which years are missing and speak with CRA or a professional about bringing those years up to date.
- Has the Final T1 been filed
- If not, focus on collecting income information up to the date of death and completing the Final T1, with optional T1 returns if they make sense.
- Is the estate earning income after the date of death
- If yes, consider when you will need to file a T3 estate return and how long the estate will remain open.
From there, you can:
- list which returns are required
- confirm deadlines on the CRA pages for doing taxes for someone who died and for filing and payment due dates
- decide whether to involve an accountant or tax specialist
You do not need to solve every detail at once. Starting with the Final T1 and a simple summary of estate income will create a clear base for the rest of the tax work.
