- Gains on a home may be fully or partly exempt, but the property must still be reported on Schedule 3 and Form T1255.
- The deceased's principal residence designation applies only until the date of death.
- Later sales are reported by the estate on a T3 return or by the beneficiary on their own T1.
If you are an heir of a home, you may wonder whether the death triggers capital gains tax. The home is often the biggest asset in an estate, so the answer matters.
This article explains how the deemed sale on death applies to a home, how the principal residence exemption fits in, and who is taxed if the house is sold later. Federal tax rules apply in Alberta the same as elsewhere in Canada.
This article covers the law of Alberta.
Death triggers a deemed sale, including of a home
When a person dies, they are considered to have sold all their property just before death, even though no sale happens. This may create a capital gain or loss.
The gain or loss is the fair market value on the date of death minus the adjusted cost base. The legal representative reports it on Schedule 3 and line 12700 of the final return. A home is property like any other for this purpose, so the exemption is what can reduce or remove the tax.
How the exemption works on the final return
Gains on a home may be fully or partly exempt. The property must still be reported using Schedule 3 and Form T1255.
The deceased's principal residence designation applies only until the date of death. Whether the whole gain is exempt can depend on the facts, such as whether the home qualified as the deceased's principal residence, so a lawyer or accountant can confirm your situation.
- Reporting on Schedule 3 and Form T1255 is required even when the gain may be exempt.
- The exempt portion may be full or partial.
- Any tax that does arise is on the final return and is paid from the estate, not by the heir.
When the home goes to a spouse
A transfer to a spouse requires no designation or deemed disposition on the final return.
More generally, property passing to a Canadian-resident spouse, common-law partner or qualifying spousal trust is deemed disposed of at adjusted cost base, and the recipient takes that cost. The spouse or common-law partner must be a resident of Canada at death, and the property must be locked in for them no later than 36 months after the date of death. The legal representative can elect out of this rollover, property by property.
Tax on later sales by the estate or heirs
The person who acquires the home is treated as acquiring it at its fair market value at death. A beneficiary who later sells reports the sale on their own T1, using the fair market value from the final return as the starting cost.
If the estate sells the home after death, the estate reports the sale on a T3 return. The exemption on the final return applies only until the date of death, so you should not assume a later sale is exempt. Ask a lawyer or accountant whether any relief applies to that sale.
| Who sells | Where it is reported |
|---|---|
| Estate, after death | T3 return |
| Beneficiary, later | Beneficiary's own T1 |
| Deceased (deemed sale at death) | Final return, Schedule 3 and Form T1255 |
What to do next
- Find the purchase records and any improvement costs to support the adjusted cost base.
- Get a fair market value as of the date of death, since it becomes the heir's starting cost.
- Ask the executor to report the home on Schedule 3 and Form T1255.
- Check whether the home is passing to a spouse or common-law partner.
- Talk to a lawyer or accountant before the estate or a beneficiary sells.
Frequently asked questions
Is there capital gains tax when a homeowner dies?
The home is treated as sold just before death, which may create a gain. Gains on a home may be fully or partly exempt, but it must still be reported using Schedule 3 and Form T1255.
Does the exemption cover a sale after death?
The deceased's principal residence designation applies only until the date of death. A later sale is reported by the estate on a T3 return or by the beneficiary on their own T1.
Who pays tax on the home at death?
Any capital gains tax from the deemed disposition falls on the final return and is paid from the estate, not by the heir.
What if the home goes to the surviving spouse?
A transfer to a spouse requires no designation or deemed disposition on the final return.
Sources
- Income Tax Act, s. 70 — Justice Laws (federal)
- CRA – Deemed disposition of property for deceased taxpayers — canada.ca
- CRA – Taxable capital gains on property, investments, and belongings — canada.ca
Links go to official government, court and regulator pages. The law changes — confirm you are reading the current version.
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