Quick answer: A Graduated Rate Estate (GRE) — the first 36 months after death — pays tax at marginal rates on capital gains, just like an individual. After 36 months, the estate is taxed as an ordinary trust at the top federal rate on every dollar.
What this means: An estate that lingers past 36 months gets hit with 33% federal plus top-rate provincial (~50%+) on any post-death gains, instead of the deceased’s average rate. Closing the estate within 36 months almost always saves tax.
What to do next: Read the executor checklist on the canonical guide. Estate canonical guide →
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.
A graduated rate estate, or GRE, is taxed at graduated personal income tax rates for up to 36 months after the date of death. Once that 36-month period ends or any qualifying condition is broken, the estate is treated as a regular testamentary trust and is taxed at the top federal marginal rate of 33 percent on every dollar of taxable income, including taxable capital gains. This single distinction can change the effective rate on a large capital gain by 20 percentage points or more.
How a GRE qualifies
An estate is a GRE for a tax year only if all of the following are true:
- The estate arose on the death of an individual and the year is no later than the 36-month period beginning at the date of death.
- The estate is a testamentary trust (created by the will or under the law of a province on the death of the individual).
- The estate’s first T3 return designates the estate as a GRE and includes the deceased’s social insurance number.
- No other estate of the same deceased has been designated as a GRE.
Tax rates compared
| Trust type | Federal rate on taxable capital gains | Period |
|---|---|---|
| Graduated rate estate | Graduated brackets: 8 percent up to $60,000 of taxable income, then 14, 20.5, 26, 29.32, 33 percent | Up to 36 months from date of death |
| Regular testamentary trust (post-GRE estate) | 33 percent flat | After 36 months or after disqualification |
| Regular inter vivos trust | 33 percent flat | All years |
| Qualified disability trust (QDT) | Graduated brackets including 8 percent up to $60,000 | While qualifying conditions are met |
Provincial top marginal rates apply on top of the federal rate, so the combined top rate on a taxable capital gain in a regular testamentary trust ranges from roughly 44 to 54 percent depending on the province. Inside the GRE window, the same gain can be taxed at less than 25 percent if total taxable income stays inside the lowest bracket.
Worked example: $400,000 capital gain
An estate sells a non-registered investment in 2026 for a $400,000 capital gain. Inclusion rate is one-half, so taxable capital gain is $200,000. Assume no other estate income for the year.
| Treatment | Federal tax (approx.) |
|---|---|
| GRE, taxable income $200,000 | $60,000 at 8 percent + $58,523 at 14 percent + $58,479 at 20.5 percent + $22,998 at 26 percent = approximately $34,500 |
| Regular testamentary trust at 33 percent flat | $200,000 × 33 percent = $66,000 |
The GRE saves roughly $31,500 of federal tax on this single sale. Provincial rates add similar absolute savings inside the GRE window. The lesson: where possible, realize estate-level capital gains while the estate is still a GRE rather than after it loses GRE status.
Other GRE benefits beyond rates
| Feature | GRE | Regular trust |
|---|---|---|
| Tax year-end | Any date within first 12 months; can be non-calendar | December 31 |
| Charitable donation timing | Donations by will can be allocated to the estate, the year of death, or earlier years | Donations claimed in the year made |
| Loss carryback to deceased | Net capital losses in the GRE’s first tax year can be carried back to the final return | Not available |
| Subsection 164(6) loss carryback | Available; reduces capital gains on the final return when the estate sells at a loss within first taxation year | Not available |
| Alternative minimum tax | Not subject to AMT | Subject to AMT |
Forms and timing
The first T3 Trust Income Tax and Information Return designates the estate as a GRE; this designation cannot be made later. T3 Schedule 1 reports dispositions of capital property at the one-half inclusion rate. Form T2071 Election to deem the trust to be a GRE is not used; the GRE designation lives in the T3 return itself. After the 36-month period, the estate has a deemed tax year-end on the day GRE status is lost, which triggers a final T3 filing for the GRE period.
Practical sequencing for executors
Executors holding appreciated investments inside an estate generally aim to complete the major dispositions inside the GRE window, particularly any sales that would otherwise generate large taxable capital gains. Estates that hold real estate or private company shares may benefit from accelerating sales or making in-kind distributions to beneficiaries before month 36. After month 36, the estate is taxed at the top rate on every dollar, and the planning options shrink to flow-throughs to beneficiaries.
Cross-references
- Capital Gains Tax When Someone Dies in Canada
- Capital Gains Inclusion Rate for Deceased Estates in 2026
- Principal Residence Exemption After Death
- RRSP to RRIF Strategy Before Starting CPP and OAS
Frequently asked questions
- How long does graduated rate estate status last?
- Up to 36 months from the date of death. After that the estate is taxed at the top federal marginal rate of 33 percent as a regular testamentary trust.
- How are capital gains taxed in a GRE?
- At graduated federal personal rates (8 percent on the first $60,000 of taxable income, then 14, 20.5, 26, 29.32, and 33 percent), plus provincial graduated rates. The one-half inclusion rate applies.
- What is the federal rate on a regular testamentary trust?
- 33 percent flat on all taxable income, including taxable capital gains.
- How is GRE status claimed?
- By designating the estate as a GRE on the first T3 return, including the deceased's social insurance number. The designation cannot be made on a later return.
- Can losses inside a GRE be applied to the deceased's final return?
- Yes. Net capital losses realized in the GRE's first taxation year can be carried back under subsection 164(6) to reduce capital gains on the final return.
- Does a GRE pay alternative minimum tax?
- No. GREs are excluded from AMT. Regular testamentary trusts are subject to AMT.
- Should an estate sell appreciated assets before the 36-month mark?
- Often yes. Selling inside the GRE window keeps the gain at graduated rates instead of the 33 percent federal flat rate that applies after.