CRA Refund Interest: Best way to Report as Income

Tax Topics
1

I’m filing a Final 2023 Return for the deceased who died June 12, 2023.

In reviewing their 2022 return (late filed by the executor on June 20, 2023, after the date of death), I spotted an error and received approval to file an adjust. CRA processed the adjustment and paid $17.26 in Refund Interest.
Clearly, this interest was calculated by CRA from one month past the original return filing date up to and including the date the adjustment was filed (today).

My thinking is that the Refund Interest is interest earned AFTER the date of Death, and thus needs to be filed on a T3 Trust Return. In Manitoba, it would be taxed at 15% Federal only (the Provincial tax would be offset by the Family Tax Benefit) so $2.59 would be owed to CRA. This is the ONLY income for a T3 Trust, so it makes almost no sense to file a T3 Trust Return due to my charges to prepare it.

It also makes no sense to add it to the T1 2023 Final Return since this is income earned in 2024, not in 2023. Adding it to the 2023 T1 Final will have no effect on the final amount owing because the non-refundable tax credits would offset it so this is my preferred method to claim it.

Another thought is to have the Executor add it to his own personal 2024 tax return.

Any thoughts on the best way to report this?

2

I would say, if anything, have one of the BENEFICIARIES report it on their tax return, since it could be assumed to have flowed through the estate to that beneficiary. I agree - it makes no sense to prepare a T3 just to report that tiny amount of interest. But, it’s the executor’s decision. If they want to pay you $500 (or whatever) to prepare the T3, after explaining to them what a waste of time it will be…that’s their call.

3 Likes
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Agree with @Nezzer . This has happened to me before and I have put it on the beneficiary’s return. If CRA asks, at least it’s picked up somewhere and not avoided.

4

I appreciate your replies, @Nezzer and @Versa. Thank you.
It’s always good to confirm that my thinking is accurate.

My client picked up the Estate taxes today and agreed to claim the Refund Interest on his 2024 tax return. Problem solved.

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You might want to note that the executor is claiming it on his return, if you are requesting a TX-19. They can be a bit foolish in that department.

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Good point. Thanks. I’ll suggest that to them. :slightly_smiling_face: