Skip to main content

October 20, 2021

What to Know About the Graduated Rate Estate

The Graduated Rate Estate (GRE) has become an important estate planning tool in Canada since its introduction in 2015. Most trusts are subject to taxation at the highest marginal tax rate. A GRE allows the estate to use graduated tax rates up to three years post death, providing significant tax savings and the opportunity for income splitting.

GRE requirements

GRE requirements are well-documented in the estate planning community:

  1. The estate must designate itself as a GRE on the first year’s tax return
  2. No other estate of the individual can be designated as a GRE
  3. The estate must use the deceased’s social insurance number on each tax return during the 36- month period following his or her death.

What is less understood is how easily an estate’s GRE status can be lost.

Harold and Joan: a case study

Take for instance the case of Joan, the well-intentioned administrator of her late brother Harold’s estate. Harold’s estate can be best described as asset rich but cash shy. Joan is concerned the estate will not be able to pay its debts on time, so she decides to transfer $5,000 from her own savings into the estate account as a gift. She believes this will help her to administer the estate in a timely fashion. Joan also thinks it will provide more funds for Harold’s children, who are the beneficiaries of the estate and Joan’s favourite niece and nephew.

Unfortunately, Joan neglected to consider how her contribution may affect the estate’s status as a GRE. According to section 108(1) (b) of the Income Tax Act, if property is contributed to a trust by someone other than the deceased after the date of death, the trust will no longer qualify as a GRE.

Joan notices the section of the Income Tax Act refers to property being contributed, and she wonders if her voluntary payment is a “contribution”. Here, the tax court of Canada has provided some guidance.

Greenberg Estate vs. The Queen

In Greenberg Estate vs. The Queen, the court considered what designates a “contribution” and determined it was any “voluntary payment, made for no consideration and for the purpose of increasing the capital of the estate”. In other words, by making a gift to the estate, Joan has placed its GRE status, and the advantageous taxation associated with that status, in jeopardy.

When the issue was explained to Joan, she decided she would not make a gift to Harold’s estate. Instead, she opted to simply pay some of the estate’s debts herself but do so as a loan. Specifically, she chose to pay Harold’s funeral bill and his date of death tax indebtedness. Harold’s estate could then pay her back when it becomes more liquid.

Does Joan’s good intentions negatively affect the estate’s GRE status?

The answer is… maybe. Whether it affects the status or not depends on how long it takes to reimburse Joan. Section 108(1) (d) of the Income Tax Act provides, among other things, that where an estate incurs a debt to a person with whom the estate does not deal at arm’s length and the debt is not repaid within twelve months, the amount is considered a contribution. Joan will have to tread carefully and ensure she is repaid within the year. If Harold’s estate is not in a position to reimburse her within that time, the GRE status will be lost along with its graduated tax rates.

Intervivos family trust

Harold’s estate has an asset that Joan finds somewhat confusing and she wonders if it might affect its GRE status. Harold and Joan’s father created an intervivos family trust about six years ago. Each year Harold and Joan receive an income payment from the trust. The trust stipulates that its capital is to be divided between Harold and Joan when their father dies. If either Harold or Joan passes before their father, their share is to be paid to the deceased child’s estate.

Sadly, Harold’s father died about five months after Harold, and Harold’s share of the capital in the trust was deposited to Harold’s estate account. Joan wonders if that contribution impacts the GRE status of Harold’s estate. The Canada Revenue Agency (CRA) seems to think it does. The CRA issued an interpretation bulletin where it addressed a situation like this and said this was a contribution after death by someone other than the deceased which would negatively impact GRE status. The same issue may surface with an alter ego trust where the trust stipulates that upon the death of the income beneficiary, the trust’s capital is to be paid to a beneficiary’s estate.


The lesson for Joan is to proceed with caution. What may be seen as routine steps in the administration of an estate can have adverse tax consequences! To avoid unforeseen consequences, speak with your advisor to a tax specialist.


This communication is published by CI Global Asset Management (“CI GAM”). Any commentaries and information contained in this communication are provided as a general source of information and should not be considered personal investment advice. Facts and data provided by CI GAM and other sources are believed to be reliable as at the date of publication. Certain statements contained in this communication are based in whole or in part on information provided by third parties and CI GAM has taken reasonable steps to ensure their accuracy.

Market conditions may change which may impact the information contained in this document. Information in this communication is not intended to provide legal, accounting, investment or tax advice, and should not be relied upon in that regard. Professional advisors should be consulted prior to acting based on the information contained in this communication.

You may not modify, copy, reproduce, publish, upload, post, transmit, distribute, or commercially exploit in any way any content included in this communication. You may download this communication for your activities as a financial advisor provided you keep intact all copyright and other proprietary notices. Unauthorized downloading, re-transmission, storage in any medium, copying, redistribution, or republication for any purpose is strictly prohibited without the written permission of CI GAM.

CI Global Asset Management is a registered business name of CI Investments Inc.

©CI Investments Inc. 2021. All rights reserved.

Published October 5, 2021