Your Portfolio Is Taxed at Its Date-of-Death Value. Executors Now Get Three Years
Two tax bills are struck against the same non-registered portfolio on the day its owner dies, and both are computed on what it was worth that day. Only one of them can follow the market down afterwards. Ontario’s Ministry of Finance fixes the other: “The tax is based on the value of the estate, which is the value of all assets owned by the deceased at the time of death”, and “Values should be based on the fair market value of the assets as at the time of death.”
For an executor holding a taxable account through a falling market, that is the whole problem. The income tax on the deemed sale can be revisited. Ontario’s estate administration tax cannot.
The federal escape hatch is subsection 164(6) of the Income Tax Act, and in March 2026 Parliament widened it from the estate’s first taxation year to its first three. It reaches back to individuals who died on or after 12 August 2024, so an executor who closed the file on a 2024 or 2025 death may have two more years of window than they think. The election also carries a filing deadline of its own, and that is the easiest thing here to miss.
The Act deems the portfolio sold the moment before death
There is no sale and no cash, but there is a disposition. Under paragraph 70(5)(a) of the Income Tax Act, section 70 (Act current to 21 September 2026), the taxpayer is deemed to have “disposed of each capital property of the taxpayer and received proceeds of disposition therefor equal to the fair market value of the property immediately before the death”.
Paragraph 70(5)(b) completes it. Whoever acquires the property is “deemed to have acquired it at the time of the death at a cost equal to its fair market value immediately before the death”. The gain is taxed once, in the deceased’s hands, and the next owner starts clean. Half of it is income, because paragraph 38(a) sets a taxable capital gain at “1/2 of the taxpayer’s capital gain”.
Everything turns on one subtraction: fair market value at death minus adjusted cost base. The second number is built over decades of purchases, reinvested distributions and returns of capital, and it is the only side anyone can influence while the owner is alive. Our guide to tracking adjusted cost base in Canada covers how that record is kept, because an untracked ACB leaves the executor a problem nobody can fix afterwards.
A surviving spouse turns the deemed sale off, and the executor can turn it back on
Subsection 70(6) is the exception most people know, and it carries more conditions than its reputation suggests. Two of them are about residence, and the first is about the deceased: the rule applies to property “of a taxpayer who was resident in Canada immediately before the taxpayer’s death”, passing as a consequence of the death to a spouse or common-law partner “who was resident in Canada immediately before the taxpayer’s death”, or to a qualifying trust created by the will. Where that holds, paragraphs 70(5)(a) and (b) do not apply, and subparagraph 70(6)(d)(ii) deems the proceeds to be “its adjusted cost base to the taxpayer immediately before the death”. No gain, no tax, cost base intact.
The last condition is a deadline with a trap inside it. The property must be shown to have “become vested indefeasibly” in the spouse or the trust “within the period ending 36 months after the death of the taxpayer”. A longer period exists, but the Act allows it only “where written application therefor has been made to the Minister by the taxpayer’s legal representative within that period”. Let the 36 months run out without having applied during them and what is lost is not an extension but the rollover itself.
Subsection 70(6.2) is the part almost nobody uses. The legal representative may elect out of the rollover, property by property, in the deceased’s own return for the year in which the taxpayer died. Proceeds to the deceased and cost to the recipient then both become fair market value immediately before death.
Read alongside subsection 164(6), electing out is not only a way to use room in the terminal return. It builds a target for a later loss: the election manufactures a gain in the year of death, and 164(6) can send a capital loss realised later by the estate back into that same return. The gain and the loss do not have to be on the same property. One arises on what goes to the spouse, the other on what the estate itself still holds and sells.
Ontario charges a second tax on the same frozen value
Ontario’s estate administration tax is charged, in the words of the Ministry of Finance’s estate administration tax page (updated 24 June 2026), “on the value of the estate of a deceased person if an estate certificate is applied for and issued”, and “If an estate certificate is not applied for or is not issued, no tax is owed.” It is paid as a deposit when the representative applies to the Superior Court of Justice, and the deposit becomes the tax once the certificate is issued. The tax is nil at $50,000 or less, and above that it is “$15 for every $1,000 (or part thereof) of the value of the estate”, so the effective rate approaches 1.5 per cent from below without reaching it.
The base takes in bank accounts including foreign ones, investments, Ontario real estate less encumbrances, vehicles, business interests and “all other property, wherever situated”. Out of it come jointly owned assets that pass automatically to the other owner, real estate outside Ontario, the CPP death benefit, and insurance paid to a named beneficiary.
Registered plans come out too, but conditionally, and the condition is the part worth acting on. RRSPs, RRIFs and TFSAs are named on the ministry’s list of assets to include, alongside stocks, bonds, trust units, options and mutual funds. They come off again only as a plan “with a beneficiary designation or beneficiary declaration”. A TFSA with nobody named on it sits in the Ontario base at its date-of-death value and is charged at $15 per $1,000 like anything else. Name a beneficiary and it is outside the base entirely, and the difference is a form at the institution.
There is a second lever on the same page. Where the deceased left more than one will and the court issues a Certificate of Appointment of Estate Trustee with a Will Limited to the Assets Referred to in the Will, “only assets included in that specific will can be included in the value of the estate”.
The registered-plan rule also shows how far apart the two systems sit. A RRIF left to a named beneficiary who is not a spouse or common-law partner is outside Ontario’s base and outside the estate, while the income it triggers lands on the deceased’s final return, which the estate pays. We took that apart in the case of a RRIF that goes to one child while the tax bill goes to the other two.
Deductions are narrow. Funeral expenses, lawyer’s fees, credit card debt, a line of credit and unregistered loans cannot come off, though an encumbrance on real property can. An Estate Information Return is due “within 180 calendar days” after the certificate is issued, even where the calculated value is $0. Representatives who fail to file it, or “who make false or misleading statements on the return, may be fined at least $1,000 and up to twice the tax payable by the estate, imprisoned up to two years, or both”. The penalty is discretionary, and it reaches a wrong return as readily as a missing one.
Subsection 164(6) sends the estate’s loss back to the final return
The estate’s cost base in the portfolio is the 70(5)(b) date-of-death value. If the market falls before the executor sells, the estate realises a capital loss worth much less than it looks, because the gain it would naturally offset was taxed in a different taxpayer’s return. The estate can carry it forward against its own capital gains, but only the estate’s own gains are in reach, and an estate that has just sold the portfolio may never have any.
Subsection 164(6) of the Income Tax Act, section 164 is the bridge to the gain that matters. Where the legal representative, “in the course of administering the graduated rate estate of a taxpayer”, has in a taxation year “that is within the first three taxation years of the estate” disposed of capital property at a net loss, paragraph 164(6)(c) deems the elected losses “to be capital losses of the deceased taxpayer from the disposition of the properties by the taxpayer in the taxpayer’s last taxation year and not to be capital losses of the estate from the disposition of those properties”.
That closing limb is worth reading twice. The loss moves, it does not copy. Whatever goes back into the terminal return is no longer in the estate for use against gains the estate makes later.
The election has a deadline of its own, and it is not the three-year window
Paragraph 164(6)(c) also says when. The representative elects “in prescribed form and manner on or before the filing-due date for the particular taxation year of the estate”, and paragraph 150(1)(c) fixes what that date is for an estate: “within 90 days from the end of the year”. The clock runs 90 days from the end of the estate year in which the loss was realised. It is not the terminal return’s deadline, and it is not the end of the estate’s third taxation year.
The consequence is sharp. An executor who realises a loss in the estate’s second taxation year and lets that year’s filing deadline pass has lost the election on it, while the estate is still a graduated rate estate and still inside its first three taxation years. The widened window sets how long there is to realise a loss. Paragraph 164(6)(c) sets how long there is to claim it, and the second clock is the shorter one.
Paragraph 164(6)(e) adds a second form, filed “at or before the time prescribed for filing the election”, amending the deceased’s return for the last taxation year. Paragraph 164(6)(f) draws the outer boundary: the elected amount cannot be deducted in any taxation year of the deceased before the terminal year.
What changed in March 2026, and whose estate it reaches
Subsections 164(6) and (6.1) were replaced by section 79(1) of the Budget 2025 Implementation Act, No. 1, S.C. 2026, c. 3, assented to on 26 March 2026. Section 79(2) sets the reach: “Subsection (1) applies to taxation years of (a) individuals who died on or after August 12, 2024; and (b) graduated rate estates of individuals who died on or after August 12, 2024.”
The enacted Act is the authority for the rule. For what the window used to be, the source is CRA’s T3 Trust Guide, publication T4013, whose 2025 edition puts it under the heading “Carryback of losses under 164(6) and (6.1)”:
“Under proposed changes, where a taxpayer has died on or after August 12, 2024, the period for which a legal representative can elect under subsection 164(6) to treat certain capital losses and terminal losses of a taxpayer’s graduated rate estate (GRE) as the losses of the deceased taxpayer for the deceased taxpayer’s final taxation year is extended from the first taxation year of the GRE to the first three taxation years of the GRE.”
Those opening three words are why the statute and the guide have to be read together. That edition was written while the measure was still a proposal, and Royal Assent followed on 26 March 2026. An executor working from it will see the three-year window described as something that might happen, when it is law and already reaches deaths on or after 12 August 2024.
The test is the date of death. Not the date of the loss, not the estate’s year-end, not the date the form is filed.
Whether there is time left in that reach depends on a date the executor chose years ago. Take a 31 December estate year-end, which is the assumption the rest of this paragraph runs on rather than a fact about what estates do. An estate of someone who died on 12 August 2024, the earliest death the amendment touches, has lost its first two taxation years: the election on year one lapsed 31 March 2025, the election on year two lapsed 31 March 2026. The third year ends 31 December 2026, so a loss realised on or before that date is electable, with the election due 31 March 2027. A death on 31 December 2024 sits in the same position. A death during 2025 still has its second and third years open, with loss dates of 31 December 2026 and 31 December 2027. On that year-end, every death the amendment reaches still has a live year as at 30 September 2026, and on the 2024 deaths the loss has to be realised by 31 December 2026. Change that assumption and the answer changes with it. An estate of the same 12 August 2024 death that set its first year-end at 31 August 2024 reached the end of its third taxation year on 31 August 2026. No new loss can be realised there at all, and the election on a loss already taken in that year runs out on 29 November 2026. The year-end on the first T3 is what decides which of those two positions an estate is in, and it is the subject of the next section.
A $900,000 portfolio, a $180,000 fall, and what the election is worth
Take an Ontario resident who dies on 15 May 2026 at age 64, with no spouse. Pension income to the date of death is $46,000. The non-registered portfolio is worth $900,000 at death against an adjusted cost base of $400,000, and there is a designated principal residence in Ontario worth $700,000 with no gain.
The home behaves differently in each bill. It adds nothing to the deemed capital gain and its full $700,000 to the Ontario tax base. The designation does that work, and our explanation of capital gains when you sell your home in Canada sets out what it covers and where it stops.
The executor sells the portfolio on 20 February 2027 for $720,000. The estate’s cost base is the 70(5)(b) figure of $900,000, so the estate realises a capital loss of $180,000.00. All figures are in Canadian dollars, computed on 2026 federal and Ontario rates and thresholds, data as of 30 September 2026.
| Death 15 May 2026, Ontario resident | No election | With the 164(6) election |
|---|---|---|
| Deemed capital gain, ITA 70(5)(a) | $500,000.00 | $500,000.00 |
| Estate loss elected back to the terminal year | none | $180,000.00 |
| Capital gain after netting | $500,000.00 | $320,000.00 |
| Taxable capital gain, ITA 38(a) | $250,000.00 | $160,000.00 |
| Net income on the terminal return | $296,000.00 | $206,000.00 |
| Tax on the terminal return | $113,501.60 | $67,487.85 |
| Ontario estate administration tax | $23,250.00 | $23,250.00 |
| Combined | $136,751.60 | $90,737.85 |
Without the election, the terminal return carries federal tax of $69,299.99, Ontario tax of $43,301.61 including $13,079.96 of Ontario surtax, and the $900.00 Ontario health premium.
The election saves $46,013.75, which is 25.56 per cent of the $180,000.00 fall in value. Ontario surtax alone accounts for $6,554.24 of that, because taking taxable income out of the top of the terminal return also removes surtax computed on Ontario tax the deceased no longer owes.
Ontario’s tax does not move. The estate is valued at $1,600,000.00, the portfolio at its date-of-death value plus the home, and the Ontario estate administration tax is $23,250.00. After the portfolio falls to $720,000 it is still $23,250.00. There is no 164(6) for Ontario’s tax. The effective rate on this estate is 1.453 per cent.
Push the sale price low enough and the two lines cross. At a sale price of $520,766.49 the tax on the amended terminal return is $23,250.00, exactly the Ontario estate administration tax on the same estate. That $23,250.00 is $22,500.00 of federal and Ontario income tax plus the $750.00 Ontario health premium at that income. That price is a fall of $379,233.51 from the date-of-death value, 42.1 per cent. Below it, the larger of the estate’s two bills is no longer the tax on a lifetime of gains. It is the tax Ontario charges for issuing the certificate.
Probate is charged province by province. The $23,250.00 is an Ontario figure, and an estate in British Columbia or Alberta is under a different provincial rule applied to the same date-of-death snapshot.
The first T3 sets how far the window reaches and when the election is due
Before any of this is available, the estate has to be a graduated rate estate, and the death does not confer that by itself. Subsection 248(1) requires at paragraph (d) that the estate “designates itself as the graduated rate estate of the individual in its return of income under Part I for its first taxation year that ends after 2015”, and at paragraph (c) that the deceased’s Social Insurance Number is provided in the estate’s return. Both happen on the estate’s own return, the T3. Subsection 164(6) opens by naming the graduated rate estate, so an estate that files its first T3 without the designation has no election at all, whatever the year-end and whatever the loss.
Three more provisions interlock in a way that costs money quietly. Subsection 248(1) also requires that the time be “no more than 36 months after the death”. The estate’s taxation year is the period for which its accounts are made up, and subsection 249(5) caps that period: it “may not exceed 12 months, and no change in the time when that period ends may be made for the purposes of this Act without the concurrence of the Minister”. Subparagraph 249(4.1)(a)(i) adds a deemed year-end immediately before the estate stops being a graduated rate estate.
On the estate above, death is 15 May 2026 and graduated rate estate status ends 15 May 2029. How much of that 36 months the first three taxation years cover depends on the year-end chosen on the first T3, and so does the date the election on any given loss falls due.
| First year-end chosen | Third taxation year ends | Months of the 36 covered | Election deadline on a loss realised 20 February 2027 |
|---|---|---|---|
| 31 December 2026, calendar | 31 December 2028 | 31.6 | 30 March 2028 |
| 30 April 2027 | 30 April 2029 | 35.5 | 29 July 2027 |
| 14 May 2027, a day under twelve months | 14 May 2029 | 36.0 | 12 August 2027 |
A calendar year-end gives up 4.4 months, or 134 days, of election window against a year-end set just under twelve months out. In those 134 days the estate is still a graduated rate estate, but a loss realised then falls outside the first three taxation years and cannot be elected back. The year-end cannot be moved later without the Minister’s concurrence, so it is decided once.
The same choice moves the other clock the other way. The sale in the worked estate is on 20 February 2027. Under a calendar year-end that loss lands in the estate’s second taxation year, which ends 31 December 2027, so the election is due 30 March 2028. Under a 30 April year-end it lands in the first taxation year, due 29 July 2027. Under a 14 May year-end it lands in the first year as well, due 12 August 2027. One sale, three year-ends, three deadlines spread across eight months. The calendar year-end surrenders 134 days of window at the far end of the 36 months and buys nearly eight more months to elect on this early loss. Which is worth more depends on when the loss is taken, and that is the thing nobody knows on the day the first T3 is filed.
In the year of death, a capital loss can reach ordinary income
Subsection 111(2) rewrites paragraph 111(1)(b) “for the purpose of computing the taxpayer’s taxable income for that year and the immediately preceding taxation year”. The ordinary cap, which limits net capital losses to the year’s taxable capital gains, comes off in the year of death and the year before it.
CRA sets out the effect on its page covering net capital losses of a deceased person: “you can apply them to reduce other income in the final return, the year before the year of death, or both returns”. They can also go “against capital gains in any of the last 3 tax years before the year of death”. One reduction comes first, in CRA’s words: “From the net capital loss you have left, subtract any capital gains deductions the deceased has claimed to date.”
That reach is unusual. In life an ordinary allowable capital loss cannot get at ordinary income, because paragraph 3(d) subtracts only “the taxpayer’s loss for the year from an office, employment, business or property or the taxpayer’s allowable business investment loss for the year”, and the allowable business investment loss is the single species of capital loss named on that list.
The filing dates, and the executor’s own money
Paragraph 150(1)(b) grants the extended deadline only where both of its limbs are met. It applies “in the case of an individual who dies after October of the year and on or before the day that would be the individual’s filing due date for the year if the individual had not died”. CRA’s page on filing deadlines for a deceased person, last modified 20 January 2026, turns that into dates:
- Death between 1 January and 31 October: due “April 30 of the year following the death”.
- Death between 1 November and 31 December: “6 months following the death, on the same calendar day as the date of death”.
- Self-employed, death between 1 January and 15 December: “June 15 of the year following the death”, and six months after for a death between 16 and 31 December.
- A prior year’s return still unfiled at death: “6 months after the date of death, on the same calendar day as the date of death”.
In every case, “Payment of any balance owing must still be made on or before the payment due date.” The worked estate dies on 15 May 2026, in the first band, so its final return is due 30 April 2027 and the balance is payable that day. The belief that a final return is always due six months after death is wrong for most deaths.
Then there is the executor personally. Subsection 159(2) requires the legal representative to obtain a certificate from the Minister before distributing any property, and subsection 159(3) makes a representative who skips it “personally liable for the payment of those amounts to the extent of the value of the property distributed”. That is the executor’s own money, not the estate’s.
Holding the portfolio and holding the cash are the same decision
Those two duties point the same way, and against the people the executor answers to. Keeping the 164(6) option alive means the estate still owns capital property to dispose of inside its first three taxation years, so the portfolio stays where it is, and subsection 159(2) keeps the proceeds undistributed until the certificate is issued. Every month the account stays open to preserve an election is a month the beneficiaries wait while the estate carries market risk in positions nobody chose.
An executor who ends that pressure by distributing early gives up both protections at once. A loss the estate has not realised cannot be elected back, because there has been no disposition to elect on, and the distribution is made at the executor’s personal risk up to the value of what was handed out. The uncomfortable version of this job is explaining why the cheque is slow. The expensive version is writing it early.
What it comes down to
The portfolio is priced once, on the date of death, and two bills are computed from that number. One can still be reduced afterwards, by an election that carries the estate’s later loss back into a return already filed, for as long as the estate is a graduated rate estate inside its first three taxation years, and only if the election is filed by the estate’s filing due date for the year of the loss. Ontario’s tax settles at the date-of-death value and stays there.
Three decisions are made before anyone feels the loss: the designation and the year-end on the first T3, which decide whether there is an election at all and how far it reaches; the certificate that has to come before any distribution; and, on estates already in progress, the date of death, which now decides whether the window is one year long or three.
Disclaimer: The content on bestcanadianstocks.ca is for informational and entertainment purposes only and does not constitute financial advice. Past performance is not indicative of future results. Always consult a qualified financial advisor before making investment decisions. The Income Tax Act provisions quoted here (subsections 70(5), 70(6), 70(6.2), 38(a), 3(d), 111(2), 150(1)(b), 150(1)(c), 159(2), 159(3), 164(6), 248(1), 249(5) and 249(4.1)) are from the Justice Laws Website, consolidation current to September 21, 2026, fetched September 30, 2026. The March 2026 amendment to subsection 164(6) and the date it reaches back to are from the Budget 2025 Implementation Act, No. 1, S.C. 2026, c. 3, section 79, assented to March 26, 2026, also on the Justice Laws Website. Filing deadlines and the treatment of net capital losses in the year of death are from the Canada Revenue Agency’s guidance on preparing tax returns for someone who died, both pages last modified January 20, 2026. Estate administration tax figures, the base, the exclusions and the 180-day return are from the Ontario Ministry of Finance’s Estate Administration Tax page, updated June 24, 2026; the formula used here reproduces that ministry’s own published worked example before it is applied to anything else. Federal and Ontario 2026 tax rates are from the CRA’s income tax rates page and Guide T4032ON. Every tax figure in the worked estate is our arithmetic on those published rates and provisions.
