Published: June 26, 2025
Proposed amendments to the Income Tax Act (ITA)will ease the administrative burdens of executors and trustees. It is important to understand these changes as they change the tax obligations of executors and trustees. The amendments make the obligations of trustees and executors simpler than before.
Trust executors and trustees – what are they and what do they do?
An executor is the individual (or Corporation) responsible for managing the estate of a deceased individual. This often includes real and non-real property. An executor is tasked with ensuring the estate passes to the beneficiaries of a will. Executors are appointed explicitly (i.e. named in the will as the executor) or implicitly (i.e. not named in the will, but other legal factors appoint the person as the executor). Executors must act in the best interest of the beneficiaries and the deceased.
A trustee is a person responsible for managing a trust. A trust is a legal relationship in which a trustee holds property for the benefit of a beneficiary. Trusts can be explicit (i.e. directly made for the benefit of another) or implicit (i.e. the conduct of individuals indicates that he or she is holding property for the benefit of another). Trustees must act in the best interest of the trust.
Executors and trustees are also responsible for managing the tax affairs of the estate or trust they administer. This includes filing any taxes and ensuring tax compliance.
The proposed amendments and the changes to the tax obligations of trustees
These proposed Income Tax Act amendments aim to reduce the number of trusts that must file a T3 Return and provide beneficial ownership information. A T3 Return is the tax package that trusts must file every year.
One of the main changes is that certain trusts will no longer be required to file a T3 Return. This includes trusts holding registered plans, certain employee benefit trusts, and trusts with minimal or no activity or minimal assets.
The amendments also confirm that bare trusts will remain exempt from filing a T3 Tax Return for the 2024 tax year unless the CRA specifically asks for one. A bare trust is a trust where the beneficiary has full control over the trust property; the trustee’s only obligation is to dispose of the property in accordance with the beneficiary’s instructions. The trustee holds legal title, but the beneficiary holds the entire beneficial interest.
A bare trust is a principal-agent relationship: the beneficiary can instruct the trustee to transfer or sell the property at any time, and the trustee is legally obligated to comply. This provides continued relief for individuals who may unintentionally hold property as a bare trustee, such as someone listed on title for convenience.
Given these amendments, consider contacting a Canadian tax lawyer for advice regarding your tax obligations as a trustee. A top Canadian tax lawyer will have a strong understanding of these amendments and their tax implications.
Compliance for executors
Executors are responsible for handling all tax matters related to the estate. This includes filing any outstanding returns for years prior to death, preparing the final (or terminal) return for the year of death, and possibly filing a T3 Trust Income Tax and Information Return if the estate earns income after death.
To access certain tax benefits, such as graduated tax rates, the executor must also ensure the estate is designated as a Graduated Rate Estate (GRE) in the first T3 return. In addition to federal requirements, executors should be aware of other filings such as the Ontario Estate Administration Tax and local Vacant Home Tax declarations. Executors should also confirm whether any foreign tax filings are needed based on the deceased’s assets or ties or citizenship outside Canada.
Compliance for trustees
Trustees are responsible for the ongoing tax compliance of the trust they manage. This includes filing an annual T3 Return and reporting any income earned or distributed by the trust. Trustees must also stay up to date with new reporting requirements, including those related to beneficial ownership information.
If the trust holds real estate, trustees may also need to file declarations for the Vacant Home Tax or the Underused Housing Tax. In all cases, trustees are expected to ensure the trust remains compliant with federal, provincial, and municipal tax laws, and should consider seeking the advice of a Canadian tax lawyer to meet these obligations.
Pro Tax Tip – Start tracking things early
As an executor or trustee, you are responsible for keeping accurate records from day one. This includes dates of death, property values, income received, expenses paid, and distributions made. Having clear records makes it much easier to prepare tax filings, respond to CRA inquiries, and apply for tax clearance certificates later on.
Waiting until tax season to get organized can lead to missed deadlines, avoidable penalties, and unnecessary stress. Starting early gives you time to address potential issues before they arise. An experienced Canadian tax lawyer can help you stay on top of your tax obligations and avoid these issues.
FAQ
When is the final (terminal) return due for a deceased taxpayer?
It depends on the date of death:
- If the person died between January 1 and October 31, the return is due April 30 of the following year.
- If the person died between November 1 and December 31, the return is due six months after the date of death.
What is a Graduated Rate Estate (GRE), and why does it matter?
A GRE is an estate that can access graduated personal tax rates for up to 36 months after the date of death. To qualify, the estate must designate itself as a GRE in its first T3 return. Without this designation, the estate will be taxed at the top marginal rate.
Disclaimer: This article provides broad information. It is only up to date as of the posting date. It has not been updated and may be out of date. It does not give legal advice and should not be relied on. Every tax scenario is unique to its circumstances and will differ from the instances described in the article. If you have specific legal questions, you should seek the advice of an expert Canadian tax lawyer.
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