QPP paid after death, Deceased in AB 2016, rev qc deducted fed and prov taxes

[VICTORIABEARS]

deceased died in Alberta 2016. Left will, it was not known she had qpp payable. Deceased spent some time as a teacher in QC.

Executor notified in 2021 that qpp balance was available, its has taken this long to satisfy revenue qc to send the cheque, They deducted both federal and QC taxes. Gross amount was entered in box 18 on T4A

Last tax return for deceased (Estate of) was filed in 2017 for the 2016 year.

How do we file this qpp income and T4A(& QC equivalent)  information to CRA?

The $ will be distributed as per the will to 3 beneficiaries, should they each declare a 3rd on their tax returns or is this submitted on an estate of tax return?

Thanks SO much for any direction.

 

 

 

Edited March 24, 2022 by VICTORIABEARS
added info

[TheTaxSmith]

Where was the deceased a resident of? What date was an application for the QPP made? Typically an executor would file a Final return, a possible Rights and Things return, and an Estate return. If you can respond to the questions above it would make an answer to your question more specific. Where someone died is not necessarily the same as where they resided for tax purposes. Also I suggest you look at  the CRA guide for filing tax returns for a deceased taxpayer.  https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/t4011/preparing-returns-deceased-persons.html

[VICTORIABEARS]

3 hours ago, TheTaxSmith said:

Where was the deceased a resident of? What date was an application for the QPP made? Typically an executor would file a Final return, a possible Rights and Things return, and an Estate return. If you can respond to the questions above it would make an answer to your question more specific. Where someone died is not necessarily the same as where they resided for tax purposes. Also I suggest you look at  the CRA guide for filing tax returns for a deceased taxpayer.  https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/t4011/preparing-returns-deceased-persons.html

Thank you. Deceased resided in and paid taxes in Alberta. We were notified of existance of the qpp in May 2021 and this week we received the cheque and t4a and qc equivalent. The resulting $ will be split 3 ways by the beneficiaries , are these $ still treated as inhertance even though $ never received by deceased?  We thought use of the word trust (It has been suggested we submit a T3) was a BC thing but do CRA treat all estates as trusts. Rights and things never came into the equation in 2017 when the final tax returns were submitted as it was believed her simple estate was done and dusted. No one knew of qpp possibility.  Much appreciate your help-thank you.  I looked at the guides and found contradiction. I am tempted to just submit a tax return, the t4a is dated for 2020 year.

[VICTORIABEARS]

4 hours ago, VICTORIABEARS said:

Thank you. Deceased resided in and paid taxes in Alberta. We were notified of existance of the qpp in May 2021 and this week we received the cheque and t4a and qc equivalent. The resulting $ will be split 3 ways by the beneficiaries , are these $ still treated as inhertance even though $ never received by deceased?  We thought use of the word trust (It has been suggested we submit a T3) was a BC thing but do CRA treat all estates as trusts. Rights and things never came into the equation in 2017 when the final tax returns were submitted as it was believed her simple estate was done and dusted. No one knew of qpp possibility.  Much appreciate your help-thank you.  I looked at the guides and found contradiction. I am tempted to just submit a tax return, the t4a is dated for 2020 year.

I just got through to the CRA and after much research they told me this income is taxable at 53%(Culmination of fed and provincial) , rights and things cannot be used 6 years after death. The income can either be declared on a T3 by the estate or executor can issues 3 t3's to the beneficiaries splitting the amount and taxes paid by 3, this would typically result in lower taxes in accordance with the beneficiaries tax situation. taxes are payable of course but it seems better to allocate a 3rd to each benefiicary.

[TheTaxSmith]

It is as I originally thought but was looking for avenues to reduce the tax for the file. The executor has the choice of residency for the estate. If the executor is resident in a jurisdiction different from the the deceased's residency then the executor can decide which province the estate will file in. I suspect Alberta is the better choice however. So the QPP can be taxed on an estate T3 or flowed through to the beneficiaries with the subsequent tax withheld. As Quebec tax was deducted it basically is added to the Federal tax. This will complicate the process with CRA but that is how it works. Consider the year end you chose for the initial trust return to determine what tax year you are filing on the T3 and the subsequent flow through to the beneficiaries and what year they will claim that amount. Now you need to also look for the $2,500 QPP death benefit. Did you get that?

[VICTORIABEARS]

2 hours ago, TheTaxSmith said:

It is as I originally thought but was looking for avenues to reduce the tax for the file. The executor has the choice of residency for the estate. If the executor is resident in a jurisdiction different from the the deceased's residency then the executor can decide which province the estate will file in. I suspect Alberta is the better choice however. So the QPP can be taxed on an estate T3 or flowed through to the beneficiaries with the subsequent tax withheld. As Quebec tax was deducted it basically is added to the Federal tax. This will complicate the process with CRA but that is how it works. Consider the year end you chose for the initial trust return to determine what tax year you are filing on the T3 and the subsequent flow through to the beneficiaries and what year they will claim that amount. Now you need to also look for the $2,500 QPP death benefit. Did you get that?

Thanks so much, yes the $2500 was obtained from the feds and declared in 2016 year of death. All that was done was a normal tax return for year of death, no trust return was done as it was never mentioned and the estate was small.  so I do not understand "Consider the year end you chose for the initial trust return to determine what tax year you are filing on the T3" sorry. The year on T3 from Revenue qc was 2020. we have been told by cra to query this as why ?2020?, CRA said we should declare on a 2022 return as that's when funds received by the way. You are being very very helpful-thanks very much.   Why is this income taxed at 53%, max tax rate and is it tax efficient to declare separately each 3rd by the beneficiaries?-thanks   

Edited March 26, 2022 by VICTORIABEARS
added info

[TheTaxSmith]

The higher tax rate is due to a change in Estate (T3 Trust) filing back in 2016 and Graduated Rate Trusts. See the following   https://www.canada.ca/en/revenue-agency/programs/about-canada-revenue-agency-cra/federal-government-budgets/budget-2014-road-balance-creating-jobs-opportunities/graduated-rate-taxation-trusts-estates-related-rules.html

That change has now impacted your file. You should compare the total tax impact on the 3 beneficiaries versus the tax impact in having the Trust pay the tax. You can flow the QPP through the trust and provide slips for the beneficiaries, allocating both income and tax to each to avoid paying the higher trust tax if it is beneficial. The link above also explains the year end the trust would have. Your dilemma may be the year on the QPP slip versus when you received the funds. That 2020 year would require adjusting the beneficiary returns with possible interest charges on any tax owing. The death benefit amount received back in 2016 should have been filed on a T3 return and either having tax paid by the trust, or a flow through to the beneficiaries. The fact that the death benefit was applied for you should look at when the QPP pension was effectively applied for. If it was by any chance applied for before death you would have an opportunity to file a Rights and Things return and be able to exclude all or a substantial amount of tax. Then any amount left would be distributed to the beneficiaries after tax and would not impact their personal tax situation. That may seem to be a bit complicated but I hope it explains things a bit.

[VICTORIABEARS]

13 hours ago, TheTaxSmith said:

The higher tax rate is due to a change in Estate (T3 Trust) filing back in 2016 and Graduated Rate Trusts. See the following   https://www.canada.ca/en/revenue-agency/programs/about-canada-revenue-agency-cra/federal-government-budgets/budget-2014-road-balance-creating-jobs-opportunities/graduated-rate-taxation-trusts-estates-related-rules.html

That change has now impacted your file. You should compare the total tax impact on the 3 beneficiaries versus the tax impact in having the Trust pay the tax. You can flow the QPP through the trust and provide slips for the beneficiaries, allocating both income and tax to each to avoid paying the higher trust tax if it is beneficial. The link above also explains the year end the trust would have. Your dilemma may be the year on the QPP slip versus when you received the funds. That 2020 year would require adjusting the beneficiary returns with possible interest charges on any tax owing. The death benefit amount received back in 2016 should have been filed on a T3 return and either having tax paid by the trust, or a flow through to the beneficiaries. The fact that the death benefit was applied for you should look at when the QPP pension was effectively applied for. If it was by any chance applied for before death you would have an opportunity to file a Rights and Things return and be able to exclude all or a substantial amount of tax. Then any amount left would be distributed to the beneficiaries after tax and would not impact their personal tax situation. That may seem to be a bit complicated but I hope it explains things a bit.

Thanks very much. It seems no one knew about this benefit, the QPP, and in 2021 rev qc wrote to the sister living in qc advising the $ existed. That' started the application process by my wife who is executor , we live in BC , and it took till now March 2022 for Rev QC to send the cheque and t4a etc. I am glad we can flow this through the beneficiaries as at least 2 of the 3 beneficiaries will not be in the 53% tax bracket. I wanted a reference as to why its 53% to show the beneficiaries why we are doing it this way. You are a very helpful person thank you.

One hopefully final question it would indeed seem best to flow through beneficiaries, does each submit a t3 for their 3rd with their tax return and we submit nothing for the estate?

[VICTORIABEARS]

11 hours ago, VICTORIABEARS said:

Thanks very much. It seems no one knew about this benefit, the QPP, and in 2021 rev qc wrote to the sister living in qc advising the $ existed. That' started the application process by my wife who is executor , we live in BC , and it took till now March 2022 for Rev QC to send the cheque and t4a etc. I am glad we can flow this through the beneficiaries as at least 2 of the 3 beneficiaries will not be in the 53% tax bracket. I wanted a reference as to why its 53% to show the beneficiaries why we are doing it this way. You are a very helpful person thank you.

One hopefully final question it would indeed seem best to flow through beneficiaries, does each submit a t3 for their 3rd with their tax return and we submit nothing for the estate?

 

[VICTORIABEARS]

One hopefully final question it would indeed seem best to flow through beneficiaries, does each submit a t3 for their 3rd with their tax return and we submit nothing for the estate?

[clw]

The T3 Trust form,  which has names and SIN’s of beneficiaries is mailed along with the T3 slips from the issuers. Using the fillable T3 PDF slips, you can create your own with the 1/3 amounts in each of the beneficiaries names, give them a copy, and include this as well with the T3 Trust form. On the latter, make sure that taxable income is 0, as the beneficiaries will taxed.

[VICTORIABEARS]

The $ were received in 2022 and this will be the FIRST time a T3 has been submitted, do the beneficiaries declare on their 2022 return. I suppose any hope this will be treated as inheritance is a pipe dream, but we are going to write with the zero T3 a letter pleading for it being treated as inheritance, everything I read says not, as it should have been claimed in 36 months after death which was July 2016.  VERY much appreciate your help, sorry for the one more question.  I can not see anywhere where the beneficiary info is listed I am sorry, and it also refers to a Schedule 9, talks of gifts and donations is this how cra refer to $ the beneficiaries get?

t3ret-fill-21e.pdf

Edited March 27, 2022 by VICTORIABEARS
clarification

[TheTaxSmith]

Follow this link for Schedule 9. https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/t3sch9.html

When you complete Schedule 9 you should allocate all the income (gross QPP paid) to the three beneficiaries as per their share. Then you will need to issue three T3 slips for the beneficiaries. The taxes deducted (as you initially mentioned) will be claimed as taxes paid on the last section of the T3 return. Since you are not filing a Quebec resident estate return you should add the Quebec and Federal tax together and allocate it as tax paid on the Federal return for the province of residency. The Estate will make the claim for those taxes to be refunded. Now there could be a wrinkle here due to the Quebec tax but let it happen and then adjust based on the response. After all is settled you can issue the funds to the beneficiaries. The gross QPP will be taxed on each individual's personal tax return. The tax deducted will be refunded and it can be distributed without any income tax consequences. Unfortunately the problem with Quebec tax being deducted was made by someone providing the Quebec QPP department with an address in Quebec. Sometimes the only way to get the Quebec tax refunded is to later sent a copy of the Federal Estate T3 assessment to Quebec indicating that they would not refund the Quebec tax portion (if that happened), add a letter explaining the address problem, and as well by filing a Quebec Estate return showing NIL income and tax paid (to get a refund). Complicated but that could be the final solution.

[VICTORIABEARS]

8 hours ago, TheTaxSmith said:

Follow this link for Schedule 9. https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/t3sch9.html

When you complete Schedule 9 you should allocate all the income (gross QPP paid) to the three beneficiaries as per their share. Then you will need to issue three T3 slips for the beneficiaries. The taxes deducted (as you initially mentioned) will be claimed as taxes paid on the last section of the T3 return. Since you are not filing a Quebec resident estate return you should add the Quebec and Federal tax together and allocate it as tax paid on the Federal return for the province of residency. The Estate will make the claim for those taxes to be refunded. Now there could be a wrinkle here due to the Quebec tax but let it happen and then adjust based on the response. After all is settled you can issue the funds to the beneficiaries. The gross QPP will be taxed on each individual's personal tax return. The tax deducted will be refunded and it can be distributed without any income tax consequences. Unfortunately the problem with Quebec tax being deducted was made by someone providing the Quebec QPP department with an address in Quebec. Sometimes the only way to get the Quebec tax refunded is to later sent a copy of the Federal Estate T3 assessment to Quebec indicating that they would not refund the Quebec tax portion (if that happened), add a letter explaining the address problem, and as well by filing a Quebec Estate return showing NIL income and tax paid (to get a refund). Complicated but that could be the final solution.

Thank you very very much.  What if we issue the t3's to beneficiaries showing 3rd of the gross and 3rd of taxes paid and they just show those numbers on their tax return, or is that too much of a work around !  . Oh.......big aspect, CRA said taxes are 53% as the 36 months has elapse since death, so I do not think any tax would be refunded to the estate as taxes have never been paid on this fund. But CRA did say we can do as I suggest(I think) if its beneficial tax wise to the 3 beneficiaries, which their tax rate should be less than 53%, which is 33% fed tax and 20% BC tax.  Its to do with also this is a QPP lump sum, its the lump sum which triggers highest tax apparently. Thanks very much.

 

[TheTaxSmith]

The 53%applies to graduated rate trusts which begin to exist 36 months after death. But income distributed by allocation to beneficiaries reduces the Estate income. That distribution by way of allocation and T3 slips gets taxed in the beneficiaries personal tax return. The taxes withheld are Estate taxes and can not be transferred to the beneficiaries. So you claim them as Estate taxes paid and because the Estate has no taxable income the taxes will be repaid to the Estate. Since the full gross amount of the QPP income was allocated to the beneficiaries which includes the tax withheld, the taxes are not owed by the Estate and will be reimbursed. The issue will also be that you may need to set up an Estate account to cash the cheque. Some banks will allow a different treatment when you produce all the documents such as the will and tax return assessments. The lump sum pension does not trigger a locked in 53% tax payment when the income is distributed. Alternately you can let the Estate pay the 53% and distribute the net amount after tax to the beneficiaries without them paying any income tax.

[VICTORIABEARS]

4 hours ago, TheTaxSmith said:

The 53%applies to graduated rate trusts which begin to exist 36 months after death. But income distributed by allocation to beneficiaries reduces the Estate income. That distribution by way of allocation and T3 slips gets taxed in the beneficiaries personal tax return. The taxes withheld are Estate taxes and can not be transferred to the beneficiaries. So you claim them as Estate taxes paid and because the Estate has no taxable income the taxes will be repaid to the Estate. Since the full gross amount of the QPP income was allocated to the beneficiaries which includes the tax withheld, the taxes are not owed by the Estate and will be reimbursed. The issue will also be that you may need to set up an Estate account to cash the cheque. Some banks will allow a different treatment when you produce all the documents such as the will and tax return assessments. The lump sum pension does not trigger a locked in 53% tax payment when the income is distributed. Alternately you can let the Estate pay the 53% and distribute the net amount after tax to the beneficiaries without them paying any income tax.

ok, getting clearer, one clarification, the T4a is dated tax year 2020 because rev qc says " The slips were produced for the year 2020 because the plan was deregistered that year."   Can we submit for 2022 taxes and if so, do we wait until March 2023 to submit or can we submit the t3 for trust tax refund sooner?   Thanks so much

 

[TheTaxSmith]

I think the payment you received is actually a Quebec teachers retirement plan payment and not a payment from the Quebec pension plan (QPP). The QPP if not applied for before death will have no balance after death to pay out from. Take a look at this  https://www.retraitequebec.gouv.qc.ca/en/deces/rentes-prestations/Pages/rentes-prestations.aspx  The teachers pension plan however will have a balance and will be payable to the Estate after death. What is the reason why the payment was received in 2022? Is the cheque dated 2021? The fact that you are told the plan was deregistered in 2020 and the slip is dated 2020 seems odd given you only received the cheque in 2022. Did the government make attempts to pay the amount earlier in 2020 but the funds were returned? If that is the case then 2020 is the taxable year. The Estate return is then due in early 2021 and any flow through to the beneficiaries will require they adjust their 2020 tax returns. You should take that into consideration to determine if it may be batter to have the Estate claim the income, pay the higher tax, and apply the withheld tax against what is owing and any penalty and interest charges.

 

[VICTORIABEARS]

1 hour ago, TheTaxSmith said:

I think the payment you received is actually a Quebec teachers retirement plan payment and not a payment from the Quebec pension plan (QPP). The QPP if not applied for before death will have no balance after death to pay out from. Take a look at this  https://www.retraitequebec.gouv.qc.ca/en/deces/rentes-prestations/Pages/rentes-prestations.aspx  The teachers pension plan however will have a balance and will be payable to the Estate after death. What is the reason why the payment was received in 2022? Is the cheque dated 2021? The fact that you are told the plan was deregistered in 2020 and the slip is dated 2020 seems odd given you only received the cheque in 2022. Did the government make attempts to pay the amount earlier in 2020 but the funds were returned? If that is the case then 2020 is the taxable year. The Estate return is then due in early 2021 and any flow through to the beneficiaries will require they adjust their 2020 tax returns. You should take that into consideration to determine if it may be batter to have the Estate claim the income, pay the higher tax, and apply the withheld tax against what is owing and any penalty and interest charges.

 

The cheque arrived last week as Rev QC needed certain information/proof of correctness of things. I thank you for all you help, it sounds like, given the beneficiaries tax situations, it would be best to reclaim tax paid by the estate, distribute the amount received so far, and when we get the tax refund(s), we will distribute that and the beneficiaries can enter it on their 2022 return and pay their own taxes having received a 3rd of the gross in total themselves. Everything I am told, and by cra, is that as funds were received in 2022, that's the year for the entry on the return. A statement to CRA that any late filing penalties are not appropriate as we only learnt of the matter in May 2021 and again funds were only received in 2022. We may well use some of the estate funds and pay a tax accountant to complete the t3's and review our beliefs from your wonderful help and my own research.

[TheTaxSmith]

Hi there, yes you should file a 2022 Estate return and send a cover letter to CRA explaining the situation. Keep a copy of the cheque as proof of the 2022 date as well as including a copy of the cheque for CRA. If you need a referral for a CPA in BC you can send me a private message. Take care, and remember Tax season is the most wonderful time of the year. Well for some, LOL.