Estates are a form of testamentary trust and follow the rules for the taxation of trusts unless the ITA specifies otherwise. They are subject to income tax at both the federal and provincial levels.
The 2013 Federal Budget indicated that there may be a review of the use of testamentary trusts and this includes a review of how estates are treated where they are not wound up at the end of the first year. This review has taken place and the 2014 Federal Budget confirmed that the graduated tax rates for testamentary trusts would cease at the end of 2015, with a few limited exceptions. As a result, as of January 1, 2016, estates that qualify as a “graduated rate estate” as defined in the ITA will be entitled to graduated rate for up to 36 months. After that time, if the estate continues, it will be subject to the top marginal tax rates. Further, the 36 month period cannot be extended to testamentary trusts that arise under the Will if the estate is wound up before the full 36 months. Those trusts will be subject to the top marginal rates unless they qualify as “qualified disability trust”. A key requirement for this new type of trust is that the beneficiary be entitled to the Disability Tax Credit. Various interest groups have tried to argue, unsuccessfully so far, that this is too restrictive as there are a range of legitimate reasons to use testamentary trusts, such as those for minor children, that are not tax motivated.
As stated above, the estate tax year starts on the day after the date of death and could run for up to 365 days which would give it an off-calendar year end. However, another provision in the 2014 Budget was the requirement that testamentary trusts adopt a calendar year end in the same manner as inter vivos trusts. The filing deadline is still 90 days after the tax year end which is the same rule for other forms of trusts. It is not April 30th.