Graduated Rate Estate Tax Rates in Alberta Explained

If you are the executor of an Alberta estate that will take months or years to wind up, the estate itself becomes a taxpayer. Income earned after death, and sales the estate makes, do not simply disappear into the final return of the person who died.

This article explains what a graduated rate estate is, why the 36-month limit matters, and how the T3 trust return fits in. Federal tax rules apply across Canada, and Alberta tax is worked out alongside them, so an accountant can confirm the details for your estate.

This article covers the law of Alberta.

What a graduated rate estate is

A graduated rate estate, often called a GRE, is an estate that is taxed at graduated rates, in the same way an individual is taxed. An estate can only be a GRE for up to 36 months after the death.

The actual rate tables and how they apply to your situation depend on the year you are filing, so it is worth confirming the rates with an accountant or a lawyer.

The 36-month limit

An estate can only be a graduated rate estate for up to 36 months after the death. If administration runs longer than that, the estate stops qualifying for the graduated rates.

This is a practical reason to keep administration moving. Delays in getting the estate's affairs settled can affect how the estate's income is taxed in later years.

The T3 trust return

The estate may also need to file a T3 trust return. It is due 90 days after the trust's tax year-end (or the date of final distribution if the trust ceases to exist).

Sales of property by the estate after the death are reported by the estate on a T3 return. A late T3 may attract a penalty of $25 a day, with a minimum of $100 and a maximum of $2,500, even if nothing is owing.

The T3 is separate from the final T1 return, which must be filed for every person who dies and is filed by the legal representative. An optional return for income from a graduated rate estate is due on the same date as the final return.

What the estate pays and what beneficiaries pay

Capital gains from the deemed disposition at death fall on the deceased's final return, so they are paid out of the estate and not by the heir. Beneficiaries are generally taxed only on amounts paid to them that the estate deducts.

• Tax on property deemed sold at death is reported on the final return.
• Income earned on RRSP property after death is taxed to the designated beneficiaries or the estate when received.
• Sales by the estate after death go on the T3 return.

What to do next

• Confirm the date of death, as it sets the 36-month period.
• Note the trust's tax year-end and the T3 due date that follows.
• File the final T1 return and keep it separate from the T3.
• Before distributing property, obtain a clearance certificate, because a legal representative who distributes without one is personally liable up to the value of the property distributed.
• Speak with an accountant or lawyer about the rates and timing for your estate.

Frequently asked questions