Quick answer: Form T1255 — Designation of a Property as a Principal Residence by the Legal Representative of a Deceased Individual — is how the executor claims the principal residence exemption on the deceased’s final T1. If the home qualified as the principal residence for every year of ownership, the deemed-disposition gain is fully exempt — but T1255 and Schedule 3 are still required.
What this means: The exemption is not automatic at death — it must be designated on T1255. Multi-property situations (cottage + city home) require choosing which property gets PRE for which years. The per-couple-per-year rule still applies, and the post-death designation does not automatically transfer to the estate or beneficiaries.
What to do next: Estimate the gain (and how much T1255 will exempt) for any non-PRE asset. Capital gains calculator →
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.
When a Canadian dies, every capital property they owned is treated as sold at fair market value on the date of death. For their home, the principal residence exemption (PRE) can fully or partially offset the resulting gain. The deceased’s legal representative makes the designation on Form T1255, attached to the final T1 return, and the disposition is reported on Schedule 3 even if the entire gain is exempt. After the date of death, the home’s principal residence status does not pass through to a beneficiary or estate; the beneficiary or trust must qualify on its own.
What Form T1255 is (and why it matters)
Form T1255 is the CRA designation form used by the legal representative of a deceased individual. Filing it on the final T1 does two jobs: it designates the property as the deceased’s principal residence for the chosen years, and it works through the formula that determines the taxable and exempt portions of the deemed-disposition gain. Three things distinguish T1255 from the related principal residence forms:
| Form | Filed by | When it’s used |
|---|---|---|
| T1255 | Legal representative of the deceased | On the deceased’s final T1 to designate years up to and including the year of death |
| T2091(IND) | Individual | On the seller’s T1 when a living individual sells (or a beneficiary later sells) a property they designate as their principal residence |
| T1079 | Personal trust (e.g., GRE, qualifying spousal trust) | On the trust’s T3 when the trust disposes of a property designated as a principal residence for the trust |
Even when the entire gain is exempt under the PRE, T1255 plus Schedule 3 must still be filed. Skipping the form risks CRA disallowing the exemption on later review.
The exemption formula
The exempt portion of the capital gain on a designated principal residence is:
Exempt portion = capital gain × (years designated as principal residence + 1) ÷ years owned
Each year of ownership in which the home meets the principal residence conditions and is designated counts toward the numerator. The “+1” rule allows a taxpayer to bridge a single year of overlap with another designated property (e.g., the year a new home is purchased and the old one is sold). On a final return, the legal representative designates the years for the deceased.
What qualifies as a principal residence
| Condition | Detail |
|---|---|
| Type of property | House, cottage, condo, mobile home, trailer, houseboat, or share of a co-op housing corporation |
| Ownership | The deceased owned the property alone or jointly |
| Habitation | The deceased, current or former spouse or common-law partner, or any of their children ordinarily inhabited it during the year |
| Designation | Property must be designated as the principal residence on Form T1255 in the final return |
| Land | Up to 0.5 hectares (1.24 acres) generally qualifies; more requires evidence the extra land is necessary for use as a residence (e.g., minimum lot size) |
Estate and beneficiary treatment after the date of death
The deceased’s principal residence designation only applies up to and including the year of death. After death, the property must qualify in the hands of whoever holds it:
- If a beneficiary inherits the home and ordinarily inhabits it, that beneficiary can designate it as their own principal residence from the year they begin ordinarily inhabiting it (using T2091(IND) at sale).
- If the home is held in a testamentary spousal trust, the trust can continue the designation while the surviving spouse or partner ordinarily inhabits the property, subject to the rules in Income Tax Folio S1-F3-C2 (paragraphs 2.65 to 2.66.4).
- If the home is held in a graduated rate estate (GRE), the GRE can designate the property using Form T1079 if the conditions for a personal trust principal residence are met.
- If the property is sold by the estate or trust and no qualifying designation is available for the post-death period, the gain on that period is taxable at the estate’s rate (graduated for the first 36 months under GRE, then top marginal).
Worked example: deceased’s home left to adult child
A taxpayer purchased a Toronto home in 2000 for $300,000. They die in March 2026 when the home’s fair market value is $1,400,000. The home was their only residence for the entire 26 years of ownership. The will leaves the home to their adult child.
- Capital gain on the deemed disposition: $1,400,000 − $300,000 = $1,100,000.
- Years designated as principal residence (through 2026): 27 (26 years inhabited + the “+1”).
- Years owned: 27 (whole years of ownership through year of death).
- Exempt portion: $1,100,000 × 27 ÷ 27 = $1,100,000. Entire gain is exempt.
- The legal representative still files Form T1255 and reports the disposition on Schedule 3 with a nil capital gain.
- The child’s adjusted cost base is $1,400,000 going forward. If the child later sells without ordinarily inhabiting the home, the post-death gain is taxable as a capital gain.
Spousal rollover and the principal residence designation
If the home is transferred to the surviving spouse, common-law partner, or qualifying spousal trust, no principal residence designation is required on the final return. The spouse or trust inherits the deceased’s adjusted cost base and the deceased’s history of designated years. When the spouse later sells, they designate using Form T2091(IND) and can include the deceased’s prior years of ownership. Keep records of the years the deceased would have been eligible to designate.
What is still required even when the gain is fully exempt
| Required? | Filing | Why |
|---|---|---|
| Yes | Form T1255 | The designation itself. Without it, the PRE is not claimed. |
| Yes | Schedule 3 of the final T1 | All dispositions (including PRE-exempt ones) must be reported. Failing to report can disallow the PRE. |
| Yes | Identification of the property on Schedule 3 | Address, year of acquisition, proceeds of disposition (FMV at death). |
| Sometimes | Form T1079 (later, by the trust) | Only if a personal trust (e.g., GRE, spousal trust) later disposes of a property it has designated. |
Common errors
| Error | Why it matters |
|---|---|
| Not filing Form T1255 because the gain is fully exempt | CRA requires the designation form even when the gain is nil. Missing it can disallow the exemption on review. |
| Skipping Schedule 3 because the gain is exempt | The deemed disposition must still be reported on Schedule 3 of the final return. |
| Designating two properties for overlapping years | Only one principal residence per family unit per year is allowed. The “+1” rule covers only a single overlap year. |
| Treating cottage and home both as principal residences | Designating both for overlapping years usually triggers a partial taxable gain on one property. |
| Including more than 0.5 hectares without evidence | Extra land is taxable unless required by zoning or local minimum lot size. |
| Assuming the designation passes to the heir automatically | It doesn’t. The heir starts a new clock from the date of death and must qualify in their own right. |
Forms and references
- Form T1255: Designation of a Property as a Principal Residence by the Legal Representative of a Deceased Individual.
- Form T2091(IND): Designation by an individual (used by surviving spouse or beneficiary on later sale).
- Form T1079: Designation by a Personal Trust (used by an estate or trust holding the property after death).
- Income Tax Folio S1-F3-C2 Principal Residence: detailed rules including post-death scenarios at paragraphs 2.65 to 2.66.4.
- Guide T4037 Capital Gains, Chapter 6: principal residence reporting.
Frequently asked questions
- Does the principal residence exemption apply on death?
- Yes. The legal representative designates the deceased's home on Form T1255 attached to the final return, and the gain to the date of death is exempt to the extent of the designated years.
- Do you have to file Form T1255 if the gain is fully exempt?
- Yes. The form is required to designate the property even when the entire gain is exempt; the disposition is still reported on Schedule 3.
- Can the estate continue the principal residence designation after death?
- Only if the estate is a personal trust meeting specific conditions in Income Tax Folio S1-F3-C2. A graduated rate estate can designate using Form T1079.
- Does a surviving spouse get the principal residence exemption?
- Yes. With a spousal rollover, the spouse inherits the deceased's cost base and the years the deceased would have been eligible to designate. The spouse designates on Form T2091(IND) on a later sale.
- What if a beneficiary moves into the inherited home?
- The beneficiary can designate the home as their own principal residence from the year they begin ordinarily inhabiting it, but not for years before that.
- Does land beyond 0.5 hectares qualify?
- Generally not, unless the extra land is necessary for the property to function as a residence (e.g., a municipal minimum lot size larger than 0.5 hectares at the time of purchase).
- What is the +1 rule in the principal residence formula?
- Adding 1 to the number of designated years allows a taxpayer to claim full exemption on a single year of ownership overlap with another property, such as the year a new home is bought.