Graduated Rate Estate

Administrative Policy

15 June 2021 Internal T.I. 2020-0867081I7 - Pension Benefit Received by Estate

no CRA authority to extend 36-month period

After the Office of the Public Trustee for the Province (the “Trustee”) finalized the Estate of the deceased, received a CRA clearance certificate, and closed its file, with the 36-month graduated rate estate (“GRE”) period then expiring, the Trustee was contacted by the Government of Canada Pension Centre that a pension payment was still owing to the deceased, which amount was then paid and received by the Estate on the last day of the Estate’s taxation year, and distributed by the Trustee in the following taxation year.

The Trustee re-opened the Estate and reported the lump sum benefit, which was taxed at the highest marginal tax rate applicable to individuals. Upon filing the T3 return, the Trustee requested that the GRE period be extended to include the year in which the pension amount was received. The Directorate stated:

The GRE definition does not provide the Minister of National Revenue with the ability to extend the 36-month period, nor can the authority for such an extension be found elsewhere in the Act.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(24) up to the trustee to determine whether an amount received on the last day of the year was payable to the beneficiary on that date 224
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(27) s. 104(27) unavailable after estate ceased to be a GRE 96

15 June 2021 STEP Roundtable Q. 14, 2021-0883041C6 - Extending the GRE 36-month period

no CRA discretion to extend the 36 month period

An estate may be a graduated rate estate (“GRE”) a maximum of 36 months following the deceased’s death. Suppose that a lump sum from the pension plan of the deceased is not received by the estate until beyond this 36-month period – and the executor is unable to distribute the income to the sole beneficiary before the end of the year of receipt. Can the Minister, where the late payment of the pension benefits is not the fault of the executor, extend the GRE status of the estate beyond the 36-month period?

CRA noted that the GRE definition does not provide the Minister with the discretion to extend the 36 month GRE period, nor does that authority exist anywhere else in the Act.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(24) pension benefit not distributed to beneficiary might nonetheless be payable in the year 113
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(27) s. 104(27) designation could not be made for a pension amount received after a trust ceased to be a GRE 170

26 November 2020 STEP Roundtable Q. 13, 2020-0847201C6 - GRE & section 216 election

non-resident estate can be GRE and file s. 216 returns

On the death of a non-resident individual, who had been filing T1 returns pursuant to the s. 216 rules regarding a Canadian rental property, that property was acquired by her non-resident estate at FMV, then was distributed to her two non-resident children (Y and Z - the residuary beneficiaries) as equal co-owners. CRA indicated that the non-resident estate can be a graduated rate estate (“GRE”) and the estate is not precluded from filing T3 returns pursuant to s. 216, stating:

A non-resident estate could be a GRE. Neither section 216 nor the definition of a GRE includes any language distinguishing a non-resident estate filing under Part I (T3 Return) on an elective basis pursuant to section 216 in respect of a Part XIII tax liability from a taxpayer who is required to file under Part I in respect of a Part I filing obligation. There is no provision in the Act prohibiting an estate filing under section 216 from qualifying as a GRE.

A non-resident estate could file its return of income under Part I pursuant to a section 216 election by the filing due date set out under section 216 and make the GRE designation in the return. While the Estate is a GRE, the Estate will be taxed at the graduated rates in respect of the net rental income.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 216 - Subsection 216(1) a non-resident estate (using GRE graduated rates), then its residuary beneficiaries, could file under s. 216 respecting a Canadian rental property 292
Tax Topics - Income Tax Act - 101-110 - Section 107 - Subsection 107(2) s. 107(2) applicable to distribution by NR estate of Canadian rental property NR residuary beneficiaries 197

8 February 2017 External T.I. 2017-0684481E5 - Status as a graduated rate estate

gift can be made qua GRE before paras. (c) and (d) satisfied

CRA considers that s. 118.1(5.1), which references a gift made by a GRE, can apply to a gift made by an estate before it has filed its first year’s return and, therefore, before it has satisfied paras. (c) and (d) of the GRE definition.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 118.1 - Subsection 118.1(5.1) estate can make a gift qua GRE before it has filed its first return 252

10 June 2016 STEP Roundtable Q. 3, 2016-0634891C6 - Estate beneficiary of IV Trust

no administrative relief for the tainting of an estate when it is the beneficiary of an inter vivos trust

An estate is a beneficiary of an inter vivos trust (which, for instance, is in turn the beneficiary of a life insurance policy). Would a payment from that trust to the estate disqualify it as a testamentary trust and, thus, as a graduated rate estate?

CRA noted that the graduated rate estate definition requires that an estate must be a testamentary trust, whose definition requires that no property have been contributed to the trust otherwise than by an individual on or after the individual’s death and as a consequence thereof – so that the property contributed to the estate, as the beneficiary of the inter vivos trust, causes the estate to fail as a GRE.

10 June 2016 STEP Roundtable Q. 2, 2016-0634881C6 - GRE and multiple wills

one estate even if offshore will unknown

If the deceased had a second will pertaining to foreign assets, and the domestic executors either do not know about this second will, or cannot deal with the foreign executors on a timely basis, would the status of the estate as a graduated rate estate (“GRE”) be invalidated if only the domestic executors elected for the estate to be a GRE?

CRA reiterated its view that there is only one estate, which encompasses all of the world-wide property of the deceased, and noted that there could be issues as to whether the domestic executors have the ability to make the GRE designation (under para. (d)) and (respecting para. (e)) that the domestic executors would need to ensure that the foreign executors did not purportedly designate their portion of the estate.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - 101-110 - Section 108 - Subsection 108(1) - Testamentary Trust - Paragraph (b) estate encompasses world property even if 2nd undisclosed will 54

10 June 2016 STEP Roundtable Q. 1, 2016-0634871C6 - GREs and Testamentary Trusts

division of an estate into testamentary trusts may accelerate (perhaps back to inception) the demise of the estate as a GRE

A deceased taxpayer’s will provides that the assets’ division into a spousal and children’s trust.

a) If assets held in the general estate were not transferred to the spousal or children trusts for two years while the estate was under administration, would tax returns be required in the interim for all three testamentary trusts?

b) If in the second year following death, all the assets were held in the spousal and children’s trusts, would there no longer be a graduated rate estate?

c) Can assets be transferred from the other testamentary trusts back to the graduated rate estate without offending the anti-stuffing rule in s. 108(1) - “testamentary trust” - (b)?

d) As donations now must be made by the general estate and not the other testamentary trusts, does this mean that the general estate must remain until the donations are made (up to the 60th month)?

CRA responded:

(a) CRA generally views trusts arising from estate residues as arising at the time of death. We reiterated that general position in question 2 at last year’s Roundtable. If the spousal or children’s are created and holding assets, the Act would require filing in respect of each of them (subject to the T3 Guide exceptions)..

(b) As (per the definition in s. 248(1)) only an estate can be a “graduated rate estate,” a testamentary trust to which property is transferred from the estate cannot be a GRE. Accordingly, if all the assets are held in the spousal or children’s trust or the trust for children in 2016, there would be no GRE.

(c) Para. (b) of the GRE definition requires that the estate be a testamentary trust as defined in s. 108(1) - and para. (b) of that definition is such that where property is contributed to a trust otherwise than by an individual on or after the individual’s death, and as a consequence thereof, it will not be a testamentary trust. Thus, the asset transfer-back to what would have been the graduated rate estate would cause it to no longer be a GRE.

(d) Although, by definition, a GRE can exist for a maximum of 36 months after death, proposed s. 118.1(5.1) provides that estates which cease to be GREs solely by reason that 36 months have passed since death, can make a donation within 60 months of death. However, all of the other requirements of the GRE definition, must be met, including that the estate arose on or as a consequence of the individual’s death.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 118.1 - Subsection 118.1(5.1) estate must continue to satisfy the other GRE requirements following 36 mos. 135
Tax Topics - Income Tax Act - 101-110 - Section 108 - Subsection 108(1) - Testamentary Trust - Paragraph (b) trusts on estate residue arise on death 90

25 June 2015 External T.I. 2014-0553181E5 F - Graduated rate estate

only an estate, not a testamentary trust, can qualify

Where the will of the deceased creates a spousal testamentary trust which receives a part or all of the deceased's property, can the spousal trust elect to be graduated rate estate? CRA responded (TaxInterpretations translation):

[O]nly an estate can be a graduated rate estate of a deceased taxpayer. Consequently, a trust created by the will of a deceased taxpayer for the benefit of his spouse cannot qualify as a graduated rate estate, irrespective of whether it holds all or part of the property transferred by the estate of the deceased.

18 June 2015 STEP Roundtable Q. 2, 2015-0572091C6 - 2015 STEP – Q2 – Meaning of Graduated Rate Estates

one estate even if multiple wills

(see also summary of initial response at 19 June 2015 STEP Roundtable, oral Q.2(a))

If an estate for a deceased who passed away after 2015 is under administration in its first 36 months, will it be considered a graduated rate estate in its entirety, even if there are two wills. At what point does the estate transition into testamentary trusts?

CRA indicated that the deceased has only one estate encompassing all of his or her property wherever it may be situated, and that this is so even if there are multiple wills with different executors. Para. (e) of the graduated rate estate definition in s. 248(1) does not imply the opposite but instead is intended to address the situation where there are different parties (executors, for example) each purporting to make the graduated rate estate designation. CRA stated:

The composition of the graduated rate estate for tax purposes will often depend on how the decedent wanted his/her assets to be administered as dictated by will. Where, for example, a will deals immediately with separating property to be held in a distinct testamentary trust apart from other assets of the estate, there can still only be one graduated rate estate allowed for tax purposes for the 36 month period (or earlier if administration is complete) following death....

Question 8 of the 2012 STEP Roundtable [stated]:

...[T]he estate of the deceased and other trusts funded out of the residue of the estate will generally be testamentary trusts. Traditionally, the CRA has not attributed any tax consequences to the transition from estate administration to trust administration and generally has viewed the trusts created out of the residue as arising on death.

In practice, however, "in circumstances where more than one trust is created out of the residue, a separate T3 trust number is assigned to each trust."

Paragraph (a)

See Also

Wenikajtys (Estate) v. The Queen, 2021 CCI 93 (Informal Procedure)

the 36-month GRE rule is anomalous where the estate was precluded from receiving pension income within the 36 months

The taxpayer was an estate of an individual who died at age 56 in January 2014. The estate was entitled to receive a lump sum from a pension plan for City of Montreal employees. However, later in 2014, a Quebec Act required that 20% of such amount be held back until it was determined whether the pension plan members should bear the costs of a reorganization of the pension plans for Quebec municipal employees. In June 2018, it was determined that such cost would not be borne by them, and the 20% holdback was released to the estate.

In finding that the estate could not benefit from graduated rates on this income because it no longer satisfied the 36-month test in the definition of a graduated rate estate, Boyle J stated (at para. 12, TaxInterpretations translation):

I agree with Mr. Turski [the surviving spouse and executor] that, given his wife's circumstances, the 36-month rule and the resulting tax increase do not seem appropriate, reasonable or fair in light of general tax policy. I also agree that it is highly unlikely that his wife's circumstances would raise the concerns that led the Department of Finance and the legislature to adopt the 36-month rule. However, the task of this Court is to apply the relevant law; it cannot refuse to do so on grounds of equity or justice.

He went on to state (at para. 15):

Had the CRA pointed out the existence of the 36 month rule and explained it more clearly and fully to the estate, it is possible that the estate, after confirming this, would have sought a remission order rather than going to this Court. … If the Minister agrees with Mr. Turski, and indeed with me, that the application of the 36-month rule in this case seems to lead to an unfair and unreasonable result, and that the public interest that led to the adoption of that rule does not apply in this case - and I hope the Minister will so agree - then the Minister will ask Cabinet to approve the remission order.


Elie Roth, Tim Youdan, Chris Anderson, Kim Brown, "Classification of Trusts for Income Tax Purposes", Chapter 2 of Canadian Taxation of Trusts (Canadian Tax Foundation), 2016.

GRE may terminate before 36 mos. (p. 62)

It appears that the 36-month period is an upper limit; therefore, an estate ceases to be a graduated rate estate earlier if its administration has concluded earlier under general law principles. [fn 18: If, for example, a spousal trust or a trust for the deceased's children is established from assets of the deceased's estate pursuant to the will before the 36-month period expires, the spousal or children's trust is not a graduated rate estate. See Society of Trust and Estate Practitioners (STEP)/CRA round tables, June 25, 2015 and June 10, 2016.]

Paragraph (c)

Administrative Policy

7 June 2019 STEP Roundtable Q. 10, 2019-0809651C6 - Non-resident Estate as GRE

NR estate can provide a temporary tax number of deceased lacking a SIN

The U.S.-resident estate of a U.S.-resident individual who died holding real estate in Canada and did not have a social insurance number (“SIN”) will realize a gain on the disposition of the property. Can a non-resident estate be a graduated-rate estate (“GRE”) and, if so, what would CRA consider as “such other information as is acceptable” in meeting the requirement in para. (c) of the GRE definition?

CRA indicated that the GRE definition does not require an estate to be resident in Canada, nor that the deceased have been resident in Canada before death. Instead, the requirement in para. (c) is to provide the SIN of the deceased, or other acceptable information, allowing CRA to ensure that only one graduated rate estate designation is made for each deceased individual.

In this situation, if the deceased did not have a SIN, the estate could provide a temporary tax number or an individual tax number.

Paragraph (d)

Administrative Policy

7 June 2019 STEP Roundtable Q. 9, 2019-0798631C6 - Estate immigrating to Canada

a non-resident estate that becomes resident can then become a GRE

An estate initially was not resident in Canada but 18 months later, on January 1, 2018, it became resident in Canada as the result of the appointment of a new trustee. Consequently, pursuant to s. 128.1(1)(a)(i), a new taxation year commenced, and the Estate will file its first tax return in Canada for the period January 1, 2018 to December 31, 2018. Can the estate designate itself as the graduated rate estate (“GRE”) of the deceased (non-resident) individual when filing its first tax return under Part I – and what is required respecting if there was no SIN?

CRA indicated that the requirement in para. (d) of the GRE definition - that the estate designate itself as the GRE of the deceased individual in its Part I return for its first taxation year ending after 2015 – would be satisfied if such designation was made in the estate’s return for its first taxation year after 2015 in which it was required to file a Part I return. Here, as there are no facts suggesting that the trust should file a Canadian tax return before 2018, all the requirements can be satisfied for the estate to be a GRE, and it could designate itself to be a GRE of the individual when it files its 2018 return.

As for (b) of the question, para. (c) of the GRE definition requires an individual’s SIN to be provided on the estate’s income tax return each year or, if the individual had not been assigned a SIN before death, such other information as is acceptable to the Minister.

If the individual did not have a SIN, the Minister would accept a temporary tax number, or an individual tax number, which can be obtained by filing a T1261.

May 2016 Alberta CPA Roundtable, Q.18

Respecting the requirement for an estate to designate itself, in its first T3 return of income for the first taxation year after 2015, as the individual's graduated rate estate (GRE), CRA stated:

If the designation for the trust to be a GRE is omitted in error, an adjustment request containing the elements required for the designation and the rationale for the omission from the original filing may be submitted to the CRA.