2022-0950531C6 2022 CTF – Q9 - Multiple Wills and T3 Reporting

Principal Issues: 1. When an individual has two wills which are administered separately, does this impact the filing obligations of an executor? 2. Will the post-amble of subsection 104(2) apply?

Position: 1. Regardless of the existence of multiple wills, an individual has only one estate. 2. No.

Reasons: 1. See discussion below. 2. Since there is only one estate, there is only one trust for income tax purposes.

Author: Dannehl, Dawn
Section: 104(2), 150(1)(c), 249(1)(b), 249(1)(c), Reg 204

2022 CTF Annual Tax Conference

CRA Roundtable

Question 9: Multiple Wills

For non-income tax reasons, an individual may establish two wills – one that is subject to probate and one that is not subject to probate. The beneficiaries under each will may be substantially the same; however, the terms under which distributions can be made may be different. Provincial law may direct that the executors of each will must be different. Can the CRA confirm the tax-filing obligations of the executors under each will – specifically, does subsection 104(2) of the Income Tax Act, (the “Act”) (footnote 1) apply such that one T3 return is filed for the estates created under both wills? At what point in time can each executor file a return for the estates created under each will?

CRA Response

We understand that an individual may have two wills for the purpose of reducing probate taxes, or for other estate planning purposes and we have previously stated that there is nothing to preclude these from being administered separately. We have been of the consistent view however, that regardless of the existence of multiple wills, an individual has only one estate which encompasses all of the worldwide property owned by the individual at death (footnote 2) .

In our response to Question 2 at the 2015 CRA STEP Roundtable we further stated:

“While paragraph (e) of the definition of graduated rate estate requires that “no other estate designates itself as the graduated rate estate of the individual”, in our view, this wording was used for greater certainty to ensure that there not be competing parties attempting to make the designation as the graduated rate estate of an individual.”

Additionally, the Department of Finance Explanatory Notes in respect of the definition of “graduated rate estate” in subsection 248(1) state,

“The income tax rules are predicated on the understanding that an individual has only one estate that arises on the individual’s death…”

For the purpose of the Act, a trust is defined in subsection 248(1) to have the meaning assigned by subsection 104(1) and, unless the context otherwise requires, includes an estate. The post‑amble to subsection 104(2) can only be applied where there is more than one trust and the conditions of paragraphs (a) and (b) are satisfied. However, in the question provided, there is only one trust for income tax purposes – the estate; and the post‑amble to subsection 104(2) is not applicable.

Depending upon the manner in which the estate planning is undertaken, the use of multiple wills may create practical difficulties in regard to an executor’s reporting requirements pursuant to paragraph 150(1)(c) and section 204 of the Regulations under the Act, and the designation of the estate as a graduated rate estate (“GRE”) of the deceased individual. Information sharing issues, communication between executors, and other such issues can arise. These will need to be considered and coordinated to ensure the complete and timely filing of the estate’s T3 Trust Income Tax and Information Return (“T3 return”).

Pursuant to paragraph 150(1)(c), the T3 return is to be filed within 90 days from the end of each taxation year of a trust or estate (footnote 3) . As was noted in our response to Question 3 of the 2018 STEP CRA Roundtable (footnote 4) , paragraph 249(1)(b) defines a taxation year of a GRE to be the period for which the accounts of the estate are made up for purposes of assessment under the Act. Paragraph 249(1)(c) defines, for purposes the Act, a taxation year of a trust, other than a GRE, to be a calendar year.

Dawn Dannehl

2022-095053

November 29, 2022

FOOTNOTES

Note to reader: Because of our system requirements, the footnotes contained in the original document are shown below instead:

1 Unless otherwise stated, all references to a statute are to the Income Tax Act RSC 1985 (5th Supp), c 1, as amended.

2 See responses to Question 2 of the 2015 and 2016 STEP CRA Roundtables, documents 2015-0572091C6 and 2016-0634881C6.

3 Regulation 204(2) provides for the same filing due date.

4 See document 2018-0744081C6. This document also discusses taxation year end of a trust in a year in which the GRE or trust is wound up.

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