New Brunswick Estate Taxes After Death: What Executors Must File

New Brunswick does not have a provincial estate tax or inheritance tax. But that does not mean the estate has no tax obligations. Federal income tax applies to the deemed disposition of assets at death, the collapse of registered accounts, and the ongoing income generated by the estate during administration. Executors who miss these obligations — or who distribute assets before satisfying them — can end up personally liable for amounts the CRA later assesses.

The Terminal T1 Return: The Deceased's Final Tax Filing

The executor is legally required to file a final personal income tax return for the deceased — the "terminal T1" — covering all income earned from January 1 of the year of death through the date of death.

What gets reported on the terminal T1:

• All employment income, pension income, CPP, and OAS received up to the date of death
• All investment income (interest, dividends, capital gains) earned up to the date of death
• The deemed disposition of capital property: under the federal Income Tax Act, the deceased is treated as having sold all capital property at fair market value immediately before death. Any resulting capital gains are reportable on the terminal return.
• RRSP and RRIF balances where the estate is the named beneficiary (more on this below)

Federal deadline: The terminal T1 must be filed by the later of April 30 of the year following the year of death, or six months after the date of death.

The estate also owes New Brunswick provincial income tax on the terminal return at the same rates that applied during the deceased's lifetime. New Brunswick uses a graduated provincial income tax structure applied to the same net income base as the federal return.

The RRSP Problem: The Costliest Tax Trap for New Brunswick Estates

RRSPs and RRIFs are the most expensive assets to hold at death in Canada — and many families do not realize this until after the estate is distributed.

When a spouse is the named beneficiary: The RRSP or RRIF can be rolled over to the surviving spouse's account tax-free, deferring the tax obligation. This is the most common and most tax-efficient outcome.

When an adult child or the estate is the named beneficiary — or when there is no named beneficiary: The entire balance of the RRSP or RRIF collapses onto the deceased's terminal T1 return and is taxed as ordinary income in the year of death. For an RRSP worth $200,000, this additional income could push the terminal return into the highest combined federal and New Brunswick marginal tax bracket — meaning 50 cents or more of every dollar going to the CRA.

The executor's liability risk: If you distribute the RRSP proceeds to beneficiaries without accounting for this tax liability, and the CRA's assessment arrives after the distribution, you are personally responsible for covering the unpaid tax up to the value of the assets you distributed. The CRA does not care that the money is already in a beneficiary's account.

Estate Income: The T3 Return

Once the estate is established and begins generating income — rent from a property still in the estate, interest on a bank account, dividends from investments — that income is taxable to the estate, which is treated as a separate trust for tax purposes. The executor must file a T3 Trust Income Tax and Information Return for each taxation year in which the estate earns more than $500 in income, or whenever a distribution is made.

The estate's fiscal year can be set to end on a date other than December 31, which can provide planning opportunities in terms of when income is recognized. An accountant familiar with estate tax returns is the right person to make this determination.

The CRA Clearance Certificate: The Most Important Piece of Paper in the Administration

Before you distribute any assets to beneficiaries and close the estate, you need a Clearance Certificate from the Canada Revenue Agency. This certificate formally confirms that all of the deceased's federal tax liabilities — and the estate's tax obligations — have been assessed and paid in full.

How to get it:

1. File and receive CRA assessment of the terminal T1 return
2. File and receive CRA assessment of all T3 returns
3. Apply to the CRA for a Clearance Certificate (using the appropriate request form)
4. Wait for the CRA to process the application — officially four to six months, often longer for complex estates

Why this matters: If you distribute estate assets before receiving the Clearance Certificate, and the CRA subsequently determines that taxes are owed, you — the executor — are personally liable for those unpaid taxes up to the total value of the assets you distributed. This is one of the most serious personal liability risks in estate administration, and it is entirely avoidable by waiting for the certificate.

Some executors manage the risk by holding back a tax reserve — retaining a portion of the estate funds in the estate bank account as a buffer against potential CRA assessments — while making partial interim distributions to beneficiaries. This approach requires careful documentation and beneficiary consent.

RRSPs and the Deemed Disposition: Planning for the Tax Bill

If the estate holds an RRSP with no surviving spouse and no named beneficiary, the executor should:

• Determine the RRSP balance as of the date of death
• Estimate the combined federal and provincial tax that will be owed (typically 47–50% at the highest marginal rate for large RRSPs in New Brunswick)
• Retain sufficient liquid assets in the estate to satisfy this liability before distributing anything else

Failing to plan for this bill causes one of the most common estate disputes: beneficiaries receive interim distributions, the RRSP institution pays out the proceeds, and then the CRA assessment arrives for $80,000 in tax — and there is nothing left in the estate to pay it.

When to Involve a Tax Professional

An accountant or tax specialist familiar with Canadian estate taxation should be engaged when:

• The deceased had business income, foreign property, or complex investment portfolios
• There are significant RRSP or RRIF balances without a spousal beneficiary
• The estate will be administered over multiple years (requiring multiple T3 filings)
• The estate is potentially insolvent (liabilities exceed assets)

For the terminal T1 and straightforward T3 returns on uncomplicated estates, some executors manage the filing themselves — but the personal liability consequences of getting it wrong are severe enough that professional involvement is generally worth the cost.

The New Brunswick Probate Process Guide includes a tax compliance checklist covering the terminal T1, T3 return obligations, the Clearance Certificate application process, and the specific RRSP and RRIF rules that affect New Brunswick estates most often.

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