- The taxes that arise at death are reported on the deceased's final T1 return, which is due April 30 of the following year for deaths from January 1 to October 31.
- Death between November 1 and December 31 gives six months from the date of death to file.
- Late filing with a balance owing brings a penalty of 5% plus 1% per full month, and interest on unpaid tax.
If a parent or relative has died, you may be worried that Alberta will take a large share of what they leave. It helps to separate the different costs that can follow a death, because they work very differently.
This article explains the main tax items, when they are due and what happens if they are late. Probate costs are a separate matter from income tax, and we touch on them briefly.
This article covers the law of Alberta.
What taxes actually apply at death
The main tax event is the final T1 return, which must be filed for every person who dies. The legal representative files it, along with any optional returns. It reports the deceased's property, investments and other taxable income.
| Item | How it works |
|---|---|
| Deemed disposition | The person is treated as having sold their property just before death, which may create a capital gain or loss. |
| Who pays the gain | The tax falls on the final return, so it is paid from the estate, not the heir. |
| RRSP or RRIF | The full fair market value is included in income in the year of death. |
| Amounts owed to the deceased | Included in final-year income at their value at death. |
Exceptions that reduce or defer tax
- Property passing to a spouse, common-law partner or qualifying spousal trust is deemed disposed of at adjusted cost base rather than fair market value, but only if the spouse or partner was a resident of Canada at death. The legal representative can elect, property by property, not to use the rollover so that fair market value applies instead.
- The rollover requires the property to be locked in for the spouse or partner no later than 36 months after death.
- A principal residence may be fully or partly exempt, but must still be reported using Schedule 3 and Form T1255.
- An RRSP does not trigger the deemed receipt if a spouse or partner is sole beneficiary and the property is transferred to their qualifying plan by December 31 of the year after death.
- A spouse or common-law partner, or a child or grandchild who is financially dependent because of a physical or mental impairment, can roll a refund of premiums into their own registered plan, while a non-dependent child or grandchild can only move it into a term annuity.
The capital gains inclusion rate is one-half.
Filing deadlines for the final return
If the person died between January 1 and October 31, the final return and any balance owing are due April 30 of the following year. If death was between November 1 and December 31, they are due six months after the date of death.
There are exceptions. If the deceased or their cohabiting spouse or common-law partner carried on a business, the filing date is June 15 of the following year for deaths from January 1 to December 15, and six months after death for deaths from December 16 to December 31. Payment is still due on the standard payment due date, and the later date does not apply if business expenditures were mainly tax shelter investment costs. If the person died on or before the due date of their previous-year return and had not filed it, that return is due six months after death.
If a due date falls on a weekend or CRA-recognized public holiday, a return is on time if received or postmarked by the next business day.
Late filing, interest and probate costs
A late final return with a balance owing carries a penalty of 5% of the balance plus 1% for each full month late, to a maximum of 12 months. It may be higher if a late-filing penalty was assessed in any of the three previous years. Unpaid tax bears compound daily interest from the day after the due date until paid.
Court costs connected to an estate are not income tax, and how they apply depends on your situation, so it is worth confirming with a lawyer. The estate may also need to file a separate T3 trust return, due 90 days after the trust's tax year-end, and a late T3 may attract a penalty of $25 a day (minimum $100, maximum $2,500) even if nothing is owing.
What to do next
- Confirm the date of death, because it sets the filing deadline.
- Find out whether the person or their spouse or partner ran a business.
- Check whether the previous year's return was filed.
- Gather statements for investments, RRSPs, RRIFs and property values.
- Ask a lawyer or accountant about the rollover options before you decide on elections.
Frequently asked questions
Does Alberta have a death tax?
The tax that arises at death is generally reported on the deceased's final T1 return, which reports property, investments and other income. Capital gains from the deemed disposition are paid from the estate. Whether any Alberta-specific tax applies to a particular estate depends on the facts, so it is worth confirming with a lawyer or accountant.
Will my parent's house be taxed when they die?
Gains on a home may be fully or partly exempt, but the property must still be reported using Schedule 3 and Form T1255. A transfer to a spouse requires no designation or deemed disposition on the final return.
What if the final return is filed late?
A late return with a balance owing carries a 5% penalty plus 1% per full month, up to 12 months. Interest also applies to unpaid tax.
Do beneficiaries pay tax on what they inherit?
Beneficiaries are generally taxed only on amounts paid to them that the estate deducts. If they later sell inherited property, they report that sale on their own return.
Sources
- CRA – What returns you need to file — canada.ca
- CRA – Prepare tax returns for someone who died — canada.ca
- CRA – Filing and payment due dates — canada.ca
- CRA – Deemed disposition of property for deceased taxpayers — canada.ca
- CRA – Taxable capital gains on property, investments, and belongings — canada.ca
- CRA – Line 12700 capital gains — canada.ca
- Income Tax Act, s. 70 — Justice Laws (federal)
- CRA – Death benefits — canada.ca
Links go to official government, court and regulator pages. The law changes — confirm you are reading the current version.
This is a wills & estates question
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