What Returns You Need to File — Montreal CPA Firm Near You: Final Returns, Optional T1 Returns, T3 Trust Returns, and Provincial Requirements After Death

When someone dies, their tax situation becomes more complicated, not less. The legal representative—executor, liquidator, or administrator—is responsible for determining which returns must be filed, gathering financial information, reporting income earned before and after the date of death, and ensuring all outstanding taxes are paid before distributing the estate. Filing the correct returns prevents reassessments, penalties, delays, and personal liability for the representative.

This guide explains every tax return that may be required when someone dies, including the Final T1 Income Tax and Benefit Return, optional T1 returns, previous-year returns, and the T3 Trust Income Tax and Information Return. It also outlines provincial requirements, fair market value considerations, and how to determine eligible income for each type of return.

Legal and Regulatory Framework

The Income Tax Act requires the legal representative to file a Final T1 Income Tax and Benefit Return for the deceased person. Depending on the income situation, up to three additional optional T1 returns may reduce or eliminate tax owing. These optional returns allow income to be separated into different reporting categories, allowing multiple claims for certain deductions and credits.

A T3 Trust Income Tax and Information Return may be required if the estate earns income after the date of death. The T3 Return reports trust income, capital gains, business income, and certain death-related payments received by the estate. The estate is considered a trust for tax purposes and may qualify as a Graduated Rate Estate (GRE), which provides tax advantages during the administration period.

In addition, provincial tax must be calculated using the correct return package based on the deceased’s province or territory of residence at the time of death. Quebec has its own filing system and may require separate provincial returns.

Key Court Decisions

Courts have consistently held that legal representatives must act prudently when filing returns for someone who has died. Failure to file required returns—or distributing estate assets before filing—is grounds for the executor to be held personally responsible for unpaid taxes. The CRA’s assessments and determinations are presumed correct, meaning the burden of proof lies with the estate to demonstrate correct reporting.

Courts have also upheld CRA’s authority to accept or reject optional returns, confirm eligibility for GRE status, and demand proper valuation of assets. Disputes involving capital gains at death, business income allocation, and trust reporting reflect the need for accurate documentation and timely filing.

Why CRA Targets This Issue

Estate tax filings are heavily scrutinized because errors are common in the year of death. The CRA monitors issues such as:

• failing to file a Final Return
• unfiled optional T1 returns that could reduce taxes
• unreported business, rental, or investment income
• incorrect fair market value reporting at death
• missing T3 Trust Returns
• improper allocation of capital gains
• unfiled previous-year returns
• incorrect RRSP or RRIF reporting
• lack of provincial filing where required

Because these mistakes delay estate settlement and may prevent clearance certificates, CRA audits estate-related filings more often than standard personal returns.

Mackisen Strategy

Mackisen guides legal representatives through the full estate filing process. Our approach ensures:

• all required returns are identified
• Final T1 returns report accurate income up to the date of death
• optional T1 returns are used strategically to reduce taxes
• T3 Returns are filed when the estate earns income
• provincial and federal requirements are respected
• tax slips, valuations, and supporting documents are complete
• deductions and credits are maximized
• business, rental, and investment income is reported correctly
• prior-year returns are filed when missing
• GRE status is properly claimed
• clearance certificate preparations begin only once all returns are filed

Real Client Experience

A client with a complex estate involving investments, a business, and real estate needed help determining which returns to file. Mackisen prepared the Final T1 Return, an optional Rights or Things return, and a T3 Trust Return for estate income. Deductions were optimized, and the estate’s tax liability was significantly reduced.

Another client discovered that their parent had failed to file returns for several prior years. We filed all outstanding prior-year returns, the Final Return, and the T3 Return, ensuring complete compliance and clearing the way for estate distribution.

In Quebec estates, we coordinated both CRA and Revenu Québec filings, ensuring the proper provincial and federal returns were completed for the deceased and the estate.

A sole proprietor's estate required both a Final Return and an optional T1 Return for business income earned between fiscal year-end and the date of death. We completed the reconciliation using Form T1139 and reduced the tax payable substantially.

Common Questions

What information do I need before filing returns?
Income sources, whether income was earned before or after death, inventory of assets and liabilities, property valuations, and eligibility for credits.

How many returns may need to be filed?
A Final Return is always required. Optional T1 returns and a T3 Return may also be needed. Previous-year returns must be filed if unfiled.

What is the Final Return?
The return reporting all income and property value changes from January 1 to the date of death.

What are optional T1 returns?
Additional returns that allow certain types of income to be reported separately to reduce tax.

What are the types of optional T1 returns?
Return for Rights or Things, Return for a Partner or Proprietor, and Return for Income from a Graduated Rate Estate.

What is a T3 Trust Return?
A return for income earned by the estate after death.

Do I need to file provincial returns?
Yes. Use the provincial package for the deceased’s province of residence. Quebec requires separate provincial filings.

What if the deceased had business income?
Business income must be reported on the Final Return and, if applicable, on an optional Partner or Proprietor return.

What if previous-year returns were not filed?
The legal representative must file them along with the final 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