Claim Deductions and Tax Credits After Death — Montreal CPA Firm Near You: How to Maximize Estate Tax Savings on Final, Optional T1, and T3 Returns

When someone dies, the tax rules around deductions and credits become more powerful—but also more complex. Used properly, they can significantly reduce the tax that the deceased person and their estate pay. Used incorrectly, they can trigger reassessments, leave money on the table, or delay the clearance certificate you need before distributing the estate.

As the legal representative, you are responsible for making sure the Final Return, any optional T1 returns, and the T3 estate return claim every eligible deduction and tax credit, in the right place and in the right proportion. This involves understanding which amounts belong on the Final Return only, which may be split over multiple returns, which can be doubled, and which are exclusively available to the estate.

This guide walks you through how to claim deductions and credits on the Final Return, optional T1 returns, and the T3 Trust Income Tax and Information Return, with a focus on strategy—not just form line numbers.

How to Claim: Final vs Optional T1 vs T3 Estate

The starting point is simple: you claim deductions and tax credits for the deceased on the Final T1 Income Tax and Benefit Return. That return, on its own, is enough to complete a basic file.

However, if you file one or more optional T1 returns (Rights or Things, Partner or Proprietor, or Income from a Graduated Rate Estate), you may be able to:

• Split certain deductions and credits between returns

• Claim the full amount of some non-refundable credits on each return

• Reduce or eliminate tax by applying deductions to specific types of income

The key rule when splitting:
When you split a deduction or credit between returns, the total claimed across all returns cannot be more than what would have been allowed if you had only filed the Final Return.

For lines 30000 to 30450 and 30500 (the core personal and caregiver credits), you can claim the full amount on each T1 return you file, as long as the conditions are met. This is one of the most powerful planning tools for estates.

On the other hand, some amounts cannot be claimed at all:

• Funeral expenses

• Probate fees

• General fees to administer the estate

These are not deductible as personal tax expenses, even if they are real cash outflows for the estate.

The T3 Trust Return, filed for income earned by the estate after the date of death, has its own set of deductions and credits. These apply at the estate level, not the individual level.

Deductions and Tax Credits on the Final Return and Optional T1 Returns

Think of the T1 side as being divided into three broad groups:

1. Deductions that reduce net income

2. Deductions that reduce taxable income

3. Federal non-refundable tax credits that reduce tax payable

Within those groups, some amounts:

• Can only be claimed on the Final Return

• Can be split with certain optional T1 returns

• Can be claimed in full on every return (for certain personal credits)

1. Key Deductions for Net and Taxable Income

These deductions reduce the income on which tax is calculated. Strategic use can greatly reduce the estate’s bill.

Common examples include:

• Registered pension plan (RPP) contributions: Usually on the Final Return, but may be claimed on a Rights or Things Return if the related T4 income is reported there.

• RRSP and FHSA deductions (20800, 20805): Generally claimed on the Final Return.

• Union, professional, or similar dues (21200): Can move to a Rights or Things Return when the related employment income is reported there.

• Child care expenses (21400), disability supports deduction, moving expenses, support payments, carrying charges and interest, CPP/QPP on self-employment, and others: usually claimed on the Final Return, with specific cases where they can be shifted to an optional return if related income is reported there.

• Business investment losses (21698–21700) and certain exploration or development expenses: can sometimes be moved to Rights or Things or Partner/Proprietor returns where related income appears.

• Northern residents deductions (25500), capital gains deduction (25400), and other specialized deductions: normally on the Final Return, but in some cases can be aligned with optional returns if the related income is there.

The big picture: any deduction that is tied to a specific type of income (such as business, employment, or investment) can sometimes be moved to a Rights or Things or Partner/Proprietor return—but only when the related income is reported there. This allows you to shift deductions to where they can do the most tax-reduction work.

2. Personal Credits You Can Claim in Full on Each Return

For certain federal non-refundable tax credits, the law allows you to claim the full amount on every T1 return you file for the deceased. These are incredibly powerful tools when you are filing multiple returns, because they reduce tax on each return, not just one.

Some of these include:

• Basic personal amount (30000)

• Age amount (30100)

• Spouse or common-law partner amount (30300)

• Amount for an eligible dependant (30400)

• Canada caregiver amounts (30425, 30450, 30500)

In these cases, you:

• Claim the full credit on each T1 return (Final and optional)

• Use the dependant’s or spouse’s net income for the whole year, not just up to the date of death

• May need to prorate if the deceased was a non-resident for part of the year

Some of these credits cannot be used on early-filed returns (for example, when you file before the full-year rules are finalized), but for standard filings, being able to duplicate these credits across returns is a major optimization tool.

3. Credits with Shared Maximums Across Returns

Many other federal credits can be split between returns, but the total amount claimed cannot exceed the allowable annual limit. Examples include:

• Home buyers’ amount

• Home accessibility expenses

• Adoption expenses

• Digital news subscription expenses

• Pension income amount

• Disability amounts (self or transferred from a dependant)

• Interest on student loans

• Tuition amounts and transfers

• Medical expenses

• Charitable donations and gifts

• Canada workers benefit, Canada training credit, multigenerational home renovation tax credit

• Volunteer firefighters’ and search and rescue volunteers’ amounts

For these, the strategy is usually:

• Decide which return has the higher tax rate or higher income

• Allocate more of the deduction or credit to that return for maximum impact

• Make sure the sum across all returns does not exceed what would have been allowed on just the Final Return

Medical expenses are special: they can be split, but the reduction for the lesser of 3% of net income or a fixed amount must be calculated on the combined net income of all returns, and then allocated proportionally.

Special Notes: Refundable Credits and “Estate-Friendly” Credits

Some credits are refundable, meaning they can create or increase a refund. Examples include:

• Refundable medical expense supplement

• Canada workers benefit

• Canada training credit

• Certain refundable provincial credits

For estates, properly claiming these can:

• Increase the amount refunded to the estate, improving liquidity

• Offset other taxes payable before distribution

The rules vary by line and program, and care is needed to follow the eligibility conditions.

Deductions and Tax Credits on a T3 Estate Return

The T3 Trust Income Tax and Information Return has its own set of deductions and credits that apply to the estate, not the deceased person.

Key categories include:

• Carrying charges and interest expenses: deductions for interest and fees related to investment income earned by the estate.

• Trustee fees: reasonable compensation for estate administration may be deductible at the trust level.

• Business and investment losses of other years (non-capital, limited partnership, farm and fishing, restricted farm losses): can be used to reduce current estate income.

• Amounts paid or payable to beneficiaries: these are often deductible to the trust, with corresponding income inclusion for beneficiaries.

• Foreign income that is exempt from Canadian tax and related foreign tax credits.

• Refundable and non-refundable credits, including:

  • Refundable Quebec abatement

  • Refundable investment tax credit

  • Clean technology investment tax credit

  • Capital gains refund (not for GREs)

  • Part XII.2 tax credit

  • Various provincial and territorial environmental, research, and sector-specific credits

  • Return of fuel charge proceeds to farmers tax credit

  • Canadian journalism labour tax credit, and other specialized credits

The estate’s T3 return is where post-death income and related deductions live. Properly using these:

• Reduces tax paid at the estate level

• Coordinates with distributions to beneficiaries

• Ensures no credits are wasted or forgotten

What You Cannot Deduct

It is important to be clear about what the tax system does not allow as deductions for the deceased:

• Funeral costs

• Probate fees

• Legal and accounting fees to administer the estate (though some may be deductible in the T3 as trustee fees or carrying charges, depending on nature and purpose)

• Purely personal expenses without a direct income-related or credit-related link

These may reduce how much beneficiaries ultimately receive, but they do not reduce the deceased person’s income tax on their Final Return.

Practical Strategy for Legal Representatives

When you are acting as legal representative:

1. Start with the Final Return and list every deduction and credit the deceased would normally claim.

2. Decide whether to file optional T1 returns. If yes, identify which income can move and which related deductions and credits may follow.

3. Use full-personal-credit rules (basic personal, spouse/partner, dependants, caregiver amounts) to claim them on all T1 returns where allowed.

4. Allocate split credits (tuition, donations, medical, etc.) to the returns where they produce the greatest tax savings.

5. For estate income, use the T3 Return:

   • Deduct carrying charges, trustee fees, and losses properly

   • Use estate-level credits and refunds

   • Coordinate with distributions to beneficiaries

6. Always keep supporting documents and a clear working paper showing how each deduction or credit was allocated across returns.

Why Mackisen

With more than 35 years of combined CPA experience, Mackisen CPA Montreal helps businesses stay compliant while recovering the taxes they’re entitled to. Whether you’re filing your first GST/QST return or optimizing multi-year refunds, our expert team ensures precision, transparency, and protection from audit risk.

If you are responsible for an estate, Mackisen can help you design a deduction-and-credit strategy across the Final Return, optional T1 returns, and the T3 estate return so that every legitimate tax advantage is used—and the estate is protected from surprises later.