Relief for Executors: New “3-Year Rule” for Post-Mortem Tax Planning

If you are an executor or involved in estate planning, you know the clock usually starts ticking loudly the moment someone passes away. For years, one of the most stressful deadlines has been the strict one-year window to manage capital losses and avoid double taxation. 

That deadline has now effectively tripled. 

Under Bill C-15 (Budget 2025 Implementation Act, No. 1), the government has extended the eligibility period for the Subsection 164(6) election from one year to three years. 

Here is what this means for your estate planning and why this is a massive win for executors dealing with complex assets. 

The Old Rule: The “12-Month Sprint” 

When a taxpayer dies, they are deemed to have sold all their capital assets (like stocks, cottage, or private company shares) at fair market value. This often triggers a massive capital gain and a large tax bill on their Final T1 Return. 

However, if the estate later sells those same assets for less than that value, the estate incurs a capital loss. 

Under Subsection 164(6) of the Income Tax Act, the executor can elect to “carry back” that loss from the estate to the deceased’s final return. This offsets the initial capital gain and recovers tax money. 

• The Problem: Previously, you had to sell the assets and file this election within the first taxation year of the Graduated Rate Estate (GRE). 
• The Challenge: Selling illiquid assets like a family business or a vacation home within 12 months is often impossible due to probate delays, market conditions, or family disputes. If you missed the deadline, the tax recovery was lost forever. 

The New Rule: The “3-Year Window” 

Bill C-15 has amended this rule to provide much-needed breathing room. 

• Extended Deadline: Executors can now file the Subsection 164(6) election for capital losses realized in any of the first three taxation years of the Graduated Rate Estate (GRE). 
• New Process: You will file a “prescribed form” to amend the deceased’s final T1 return to claim these losses, rather than just filing a standard adjustment.

This change allows executors to hold out for a better selling price on assets or wait for probate to clear without forfeiting the chance to recover significant taxes paid on the terminal return. 

Who Qualifies?

This change is effective for the estates of individuals who die on or after August 12, 2024.

• Note: If the death occurred before August 12, 2024, the old one-year rule likely still applies. 
• Requirement: The estate must still qualify as a Graduated Rate Estate (GRE) at the time the loss is realized to use this election.

What You Should Do Now 

If you are currently administering an estate for someone who passed away recently (after Aug 12, 2024), you now have more strategic flexibility.  

1. Review Asset Sales: You no longer need to “fire sale” assets within the first 12 months just to trigger a tax refund. 
2. Check GRE Status: Ensure the estate remains designated as a Graduated Rate Estate (GRE) for up to 36 months to utilize this extended window. 
3. Speak to Us: Implementing a 164(6) loss carryback requires precise calculations and the filing of amended returns. 

Official Government Resources 

However, for more technical details about 3 Year Rule for Post Mortem Tax Planning, you can refer to the official announcements and legislation below: 

• Department of Finance – Legislative Proposals (Aug 2024): 
  • See the draft legislation proposing the 3-year extension for 164(6). 
  • Read the Department of Finance Proposals 
• CRA – Preparing Returns for Deceased Persons: 
  • General guide on how to handle capital gains and losses for the deceased. 
  • CRA Guide T4011: Preparing Returns for Deceased Persons 
• CRA – Net Capital Losses: 
  • Explanation of how to carry back losses to the final return. 
  • Net Capital Losses – Canada.ca