Canada Inheritance Tax Laws & Information

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What is Inheritance Tax?
In Canada, there is no inheritance tax. Instead, the Canada

Revenue Agency (CRA) treats the estate as a sale, unless the

estate is inherited by the surviving spouse or common-law partner,

where certain exceptions are possible. This means that the estate

pays the taxes owed to the government, rather than the

beneficiaries paying. By the time the estate is settled, the

beneficiary should not have to worry about taxes.

Is There a Death Tax in Canada?

No, Canada does not have a death tax or an estate inheritance

tax. There is no inheritance tax levied on the beneficiaries; the

estate pays any tax that is owed to the government.

How do Canadian Inheritance Tax Laws Work?
1. When a person dies, their legal representative, the executor,

has to file a deceased tax return to the CRA. The due date of this

return depends on the date the person died. Any taxes owing

from this tax return are taken from the estate before it can be

settled (dispersed).

2. Once the executor has settled the estate, they must ask the

CRA for a Clearance Certificate which confirms all income

taxes have been paid or that the CRA has accepted security

for the payment. As a legal representative, it is important to get

this clearance certificate before distributing any property.

3. If you do not get a certificate, you can be held personally liable

for any amount(s) the deceased owes.

What are Canada’s inheritance tax rates?

As there is no inheritance tax in Canada, all income earned by the

deceased is taxed on a final return.

Non-registered capital assets are considered to have been sold for

fair market value immediately prior to death. Any resulting capital

gains are 50% taxable and added to all other income of the

deceased on their final return where income tax will be calculated

at the applicable personal income tax rates. They are taxed at the

applicable capital gains tax rates.

The fair market value of a Registered Retirement Savings Plan(RRSP) or a

Registered Retirement Income Fund (RRIF) is included in the

deceased person’s income and taxed at the regular applicable

personal income tax rates with no special treatment for any capital

gains earned within the RRSP or RRIF.

Are there any inheritance tax exemptions?

Certain exemptions are available for tax liability incurred for

deemed disposition. These include:

 the Principal Residence Exemption

 the lifetime Capital Gains Exemption.

How do Canadian inheritance tax laws work if the estate is not
inherited by a surviving spouse or common-law partner?
 The deceased is considered to have sold all of his or her

capital property for fair market value immediately prior to

death. This includes, with certain exceptions, all the deceased

person’s non-registered assets (personal belongings, cars,

investments, business assets, etc.).

 If any of these assets have gone up in value since their

acquisition, the estate will owe taxes on the capital gain in

the year of death. A capital gain is the difference between the

fair market value of the item when purchased and the fair

market value item of the same item at the date of death.

 For any registered assets (such as RRSPs and RRIFs), the

deceased person is deemed to have received the fair

market value of his or her plan assets immediately prior to

death. This amount must be included in the income of the

deceased person’s tax return.

How do Canadian inheritance tax laws work if the estate is inherited
by a surviving spouse or common-law partner?
Any non-registered capital property may be transferred to the

deceased taxpayer’s spouse or common-law partner.

For any registered assets (such as RRSPs and RRIFs), the

deceased person is deemed to have received the fair market value

of his or her plan assets immediately prior to death. This amount

must be included in the income of the deceased person’s tax

return.

However, it is possible to defer income tax if an eligible person has

been designated as the beneficiary of the RRSP or RRIF. An

eligible person includes a spouse or common-law partner, a

financially dependent child or grandchild under 18 years of age or a

financially dependent mentally or physically infirm child or

grandchild of any age.

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