Estate accounting differs from financial reporting in that it should present transactions in the order that they occur and distinguish Capital and Income transactions.
Note: while the below is an overview of the rules regarding Capital and Revenue transactions, the will may give specific instructions regarding how to classify transactions.
All of the deceased's assets are deposited in the capital account at the outset of the estate. Additionally, the following are also recorded to the capital account:
- Any subsequent asset sale or new purchase
- Any capital gain or loss resulting from an asset sale or deemed disposition
- Any resulting tax on net capital gain
- Any asset transfer to a beneficiary
- Any transactions in the deceased's accounts between the date of death and the date the asset or account is deposited to the estate account
- Commissions and fees paid to purchase or sell an asset
- Legal fees incurred on behalf of the estate to resolve a legal question, defend a claim or replace an executor
- Insurance and other costs incurred to protect non-income producing estate property
- Major expenditures used to protect or improve an estate asset (eg. new roofing or fence)
- Special assessments to condo owners for major improvements or structural replacements
- Other one-time expenses incurred for the benefit of the estate or to protect estate assets
Quebec specifically sets out the following rules regarding the capital account: The capital account is generally debited for expenditures that are not debited from the revenues, including expenses pertaining to capital investment, alienation of property, and safeguard of the rights of the capital beneficiary or the right of ownership of the administered property.
Taxes on gains and other amounts attributable to capital, even where the law governing such taxes considers them to be income taxes, are also generally debited from the capital account.
The income account, on the other hand, records the following:
- Interest on assets held by the estate
- Cash dividends and dividends in kind (stock dividends, i.e., more shares in the same company, are paid to the capital account) on assets held by the estate
- Rents on assets held by the estate
- Other income on assets held by the estate
- Tax on income not distributed
- Income distributions to beneficiaries
- Interest expense on debt incurred to earn income
- Cost of collecting rents or other income
- Annual expenses for a home that a life tenant lives in (such as condo fees, property taxes, water and utility fees, etc.)
- Insurance for income-generating properties.
Quebec lists out the following as general rules: the revenue account is generally debited for the following expenditures and other expenditures of the same kind:
(1) insurance premiums, the cost of minor repairs and other ordinary expenses of administration;
(2) one-half of the remuneration of the administrator and his reasonable expenses for joint administration of the capital and fruits and revenues;
(3) taxes payable on the administered property;
(4) unless the court orders otherwise, costs paid to safeguard the rights of the beneficiary of the fruits and revenues and one-half of the cost of the judicial rendering of account;
(5) amortization of the property, except property used by the beneficiary for personal purposes.
The administrator may, to maintain revenue at a regular level, spread substantial expenses over a reasonable period.
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