Capital Gains Inclusion Rate for Deceased Estates in 2026

Part of the estate capital gains series. For the full executor walkthrough — deemed disposition, the 2026 inclusion rate, principal residence exemption, and final T1 vs estate T3 — start with Capital Gains When Someone Dies in Canada: 2026 Estate Tax Guide.

The capital gains inclusion rate that applies to a deceased Canadian’s final return and to an estate’s T3 return in 2026 is one-half. The two-thirds inclusion rate proposed in Budget 2024 had its effective date deferred from June 25, 2024 to January 1, 2026, and was not enacted. The Canada Revenue Agency reverted to administering the one-half rate, and that is the rate currently in force for both individuals and trusts, including graduated rate estates.

How the inclusion rate has moved

What this means for an estate

Capital gains realized on the deceased’s final return and gains realized by the estate after death are both included at one-half. A graduated rate estate computes tax on its taxable capital gains at the graduated federal rates (8 percent on the first $60,000 of taxable income, then 14, 20.5, 26, 29.32, and 33 percent), plus the relevant provincial graduated rates. After the 36-month graduated rate period, the estate becomes a regular trust and is taxed at the top federal marginal rate of 33 percent, plus top provincial rates.

Lifetime capital gains exemption

The lifetime capital gains exemption limit is $1.25 million for dispositions on or after June 25, 2024. The deceased’s legal representative can claim the exemption on the final return for capital gains realized on qualified small business corporation shares or qualified farm or fishing property held by the deceased. Indexation of the exemption resumes in 2026.

Worked example: large gain on the final return

A taxpayer dies in February 2026 holding non-registered shares with an ACB of $400,000 and a fair market value of $1,200,000. The capital gain on the deemed disposition is $800,000.

• Inclusion rate: 1/2.
• Taxable capital gain: $400,000.
• This $400,000 is added to other income on the final return and taxed at the deceased’s combined federal and provincial brackets.

If the proposed two-thirds rate had been enacted, the same gain would have been taxable as $266,667 on the first $250,000 (1/2 of $250,000 = $125,000 plus 2/3 of $550,000 = $366,667), or roughly $158,000 more taxable income at the federal level. That outcome did not occur because the proposed rate was not legislated.

What did change in 2026

What to put on Schedule 3 and T3 Schedule 1

Capital gains on the final return go on Schedule 3 with totals carried to line 12700 of the T1. Capital gains realized after death by the estate go on T3 Schedule 1, with the taxable portion flowing into the T3 return. Both schedules apply the one-half inclusion rate. If the estate distributes capital gains to beneficiaries, the gains can be flowed through on a T3 slip and taxed at the beneficiary’s rate rather than retained at the estate’s top marginal rate.

Documentation that supports the rate

The CRA’s January 31, 2025 update titled “Update on the Canada Revenue Agency’s administration of the proposed capital gains taxation changes” confirms that the agency reverted to the one-half rate and is issuing forms reflecting that rate. Subsequent CRA publications, including Guide T4037 Capital Gains and the T3 Trust Guide, continue to state that the inclusion rate is one-half. Use that wording on tax filings and supporting workpapers.