T5 rec'd on Estate

I filed a Final return in 2021. Client died Nov. 3/2020 and Credit Union was advised. They have now issued a T5 for $120 +/- To the Estate of … for interest earned on the account during 2021. What would be the proper way of dealing with this small amount of money. Would I need to file an Optional - Rights or Things for the estate for 2021?

The client is also waiting for CRA to finish a review of a pension adjustment from Service Canada.

Thank you for your help…

Normally would file T3 return, also usually put CPP death benefit there as well.

Thanks for the feedback @jimt Client had not worked since 1961, stay at home Mom, and no CPP death benefit.

My understanding is that all the optional returns are for income earned up to the date of death. Any income earned after the date of death has to be filed using a T3 Trust Return.

Correct, income earned after the date of death is reported on a T3 Trust Return. The Rights and Things T1 Return is used when income was earned and owing to the deceased but not paid to them until after their death. Interest income can’t be reported on a T3 Trust Return.

@tsolowczuk … did I read that correctly, “Interest income can’t be reported on a T3 Trust Return.”
If it is earned AFTER the date of death, how else would you report it? I’ve reported it on the T3 Trust several times with no issues from CRA.

Thank you for catching that! I should have waited till the morning to respond. Interest earned up until the date of death is reported on the Final T1 Return, none of it can be reported on a Rights and Things T1 return, and the interest earned after the date of death is reported on the T3 Trust and Estate Return. The Trust and Estate Return can have a non-calendar year initially. Good night everyone.

kozakworld
February 24

@tsolowczuk … did I read that correctly, “Interest income can’t be reported on a T3 Trust Return.”
If it is earned AFTER the date of death, how else would you report it? I’ve reported it on the T3 Trust several times with no issues from CRA.

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Thank you everyone for the input and clarifying a few things. I only have the T1 subscription for TaxCycle and now for a $125+/- interest to the estate I will have to file a T3 which will cost me and the client more than the interest. Oh well, Death & Taxes.

Have a great day :slight_smile:

I only file a handful of Graduated Rate Estate (Type 903) T3 Trust Returns each year (perhaps between 3 to 5 only), to claim the CPP Death Benefit and perhaps some T5 interest earned after the date of death. When there is an amount owing to CRA on the Trust, these returns have to be paper filed (they can only be e-filed when there is a Zero balance). So for the small number I file yearly, there is little value in purchasing the TaxCycle T3 module (since they can’t be e-filed) and would mean I would have to charge my clients slightly more to offset the cost of the software. The one I filed this year already was for a client who is insolvent so the family is paying me out of pocket to file it.

I use the fillable PDF’s downloaded from CRA’s website

  • T3Ret (T3 Jacket),
  • T3sch11 (the federal tax calculations),
  • and the equivalent Provincial tax calculation form (the T3MB in Manitoba where I am).

I prepared a very simple excel spreadsheet which I use as a template to make sure I do the math correctly. In Manitoba, we claim the Family Tax Benefit.

At the point where clients start coming to me with more complex T3 Trusts involving more schedules, then I would definitely purchase the T3 module, but at this point it is manageable using the fillable PDF’s.

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starting in the next couple of weeks they will be able to efile

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Thanks Gerry. This client was a widow in mid 90’s and not eligible for CPP death benefit. The only income to the estate will be under $150. I haven’t done a T3 before, but will stumble my way through and may reach out to you and the community.

Thanks again for your help and responses.

Tom

You can report the small amounts of interest like this on the beneficiaries personal taxes rather than filing a full T3 for this. FYI, you can also do this for the CPP death benefit if it’s the only other income earned after the date of death.

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Good point @Laura. Although this is only beneficial if the executor or beneficiary have low income and are taxed at the lowest tax bracket after this new income is added to their tax return. For example, with my last T3 Return that I filed last month to claim the CPP Death Benefit, the estate would owe $446 (filed from Manitoba and claiming the Family Tax Benefit), whereas filing it on the executor’s tax return would have amounted to an amount owing of almost $700 due to this person’s higher tax rate.

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Yes you’d have to weigh any potential increase in tax against the additional cost of compliance. I’d charge more than $250 to file the T3, so if that were the only income, assuming one beneficiary, they would still be better off to pay the tax personally than pay me to file a T3.

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