Estate Administration for Executors

1. Executor personal liability — ITA s. 159

If you distribute any estate property without a clearance certificate, the CRA can collect unpaid tax of the deceased or estate from you personally, up to the value of what you distributed. Insurance does not cover s. 159 assessments.

2. The clearance certificate — Form TX19

File Form TX19 after all returns (terminal T1, any rights-and-things return, and the T3 estate returns to date) are assessed. CRA processing currently runs 90–120 days. Hold back roughly 10–15% of estate value until you have it in hand.

3. The terminal T1 return

Due the later of (a) the normal April 30 deadline of the year after death or (b) six months after the date of death. The terminal return reports income to the date of death plus the deemed disposition under s. 70(5) of all capital property at FMV (with spousal rollover under s. 70(6) where the beneficiary is a spouse or common-law partner).

4. The "rights or things" return (s. 70(2))

A separate optional return for amounts that were owed but not yet paid at death — unmatured CSBs, accrued vacation pay, uncashed dividend cheques, OAS/CPP arrears. Each additional return gets a full basic personal amount, multiplying the tax-free room. Often saves $2,000–$4,000.

5. The T3 estate trust return

The estate is a trust from the date of death. Income earned after death (interest, dividends, capital gains on sales between death and distribution) goes on a T3 return for each fiscal year of the estate. The trust year-end can be any date within 12 months of death — pick strategically.

6. GRE — the 36-month trap (ITA s. 248(1) "graduated rate estate")

For the first 36 months after death the estate may qualify as a Graduated Rate Estate, taxed at personal graduated rates rather than the 33% top trust rate. Conditions:

• The estate must designate itself as the GRE on the first T3 return;
• The deceased's SIN must be reported on that T3;
• Only one GRE exists per deceased; and
• The designation cannot be made retroactively if missed.

Miss the box on the first T3 and the estate is permanently a top-rate trust. Charitable donations, loss carrybacks under s. 164(6), and graduated-rate flexibility are all forfeited.

7. Registered accounts — the beneficiary check

RRSP/RRIF balances flow to the named beneficiary tax-free only if that beneficiary is a spouse, common-law partner, financially dependent child/grandchild, or a qualifying disabled child via Joint Election (T2019/T1090). Otherwise the entire FMV is taxable on the terminal T1 — and the tax is the estate's, but the cash went to the named beneficiary. Mismatch creates the single most expensive estate-planning failure.

TFSA: the successor holder designation (spouse only) preserves the shelter; a beneficiary designation pays out the FMV at death tax-free but kills the shelter on subsequent growth.

8. Sole proprietorship cessation

The business is deemed to dispose of all inventory and depreciable property at FMV on the date of death (s. 70(5.1)). Final GST/HST return is due within one month of cessation. A spousal rollover for the business is available under s. 70(6).

9. CCPC shares — deemed disposition & LCGE

QSBC shares can use the deceased's $1,250,000 LCGE on the terminal return — a one-time chance to shelter built-in gain. Election under s. 164(6) lets the estate carry the first-year capital loss back to the terminal T1.

10. Executor compensation

Compensation paid to an executor is taxable income — as employment income if the executor is not in the business of acting as one, or business income on T2125 if it is their occupation (trust company, professional executor). CPP applies to the employment-income version (no T4 issued by the estate creates audit risk).

11. Timeline at a glance

Day 0       Death
  Month 1     Notify CRA & Service Canada; secure assets
  Month 1-3   Apply for probate (provincial)
  Month 3-6   Open estate bank account; gather valuations
  By Apr 30 /  Terminal T1 (later of Apr 30 or 6 months from death)
  6mo
  Year 1 T3   Designate Graduated Rate Estate — do not miss
  Months 9-12 File TX19 (Clearance Certificate)
  Months 12+  Receive TX19; final distribution
  Month 36    GRE status ends; estate becomes top-rate trust