Is there such thing as estate and inheritance tax in Canada?
Recently I wrote a piece on how to handle an inheritance and got a few questions from RetireHappy readers. One of the areas greatly misunderstood in Canada is issues around taxation when you die and when you inherit money so I thought I would address some of these common questions.
Is there inheritance tax in Canada?
In Canada, there is no inheritance tax. If you are the beneficiary of money or asset through an estate, the good news is the estate pays all the tax before you inherit the money. Technically, once you inherit money, the tax has already been paid. You do not have to add inheritance to your income tax return.
What about estate tax?
Often estate tax refers to taxing the value of the estate. In Canada, Canada Revenue Agency (CRA) does not tax the assets of an estate but they do require that all of the tax owing on income up to the date of death be paid. The government taxes your income but not your assets.
With regards to income tax, both the Federal Government and the Provincial government gets taxes when you file your annual income tax return. When someone passes away, the executor must file a final tax return as of the date of death. The tax return would include any income they received since the beginning of the calendar. Some examples of income include Canada Pension Plan (CPP), Old Age Security (OAS), Retirement Pensions, Employment income, dividend income, RRSP and RRIF income received, etc.
Related article: Understanding Canadian Tax Brackets: Marginal Tax vs Average Tax
With regards to your assets, it’s important to understand that all of your assets are deemed to have been “sold” just prior to death for tax purposes. This would include real estate, land, businesses, investments and your RRSPs. Here are a few common examples of how this “sale” of assets can create income tax at death.
- Joe has $100,000 in RRSPs. When he passes away, the $100,000 RRSP is deemed to have been cashed in and on Joe’s final tax return, $100,000 of RRSP income will be added to his other sources of income.
- Let’s pretend Joe’s money was in a RRIF instead of an RRSP and Joe had already received $5250 of income from monthly RRIF payments prior to his death. On Joe’s final tax return, there would be $5250 of RRIF income and then another $100,000 of income from the asset.
- Another common example comes from Real Estate, whether it’s an investment property or a recreational property. Let’s pretend Elizabeth has an investment condo that she has owned and rented out for over 15 years. When Elizabeth passed away on June 30th, her condo is deemed to have been sold for tax purposes. Let’s say she paid $150,000 originally for the condo and now it’s worth $275,000. There is a capital gain of $125,000 of which 50% is taxable. Elizabeth’s final tax return would have to show net rental income for 6 months of the year plus the $67,500 of taxable capital gains.
- Stacy has a cottage at the lake that she inherited from her parents 22 years before she passed away. The cottage has been in the family for multiple generations and rumor has it that the land the cottage was built on was originally bought for less than $1000. When Stacy passed away at the age of 77, the cottage was deemed to have been sold for tax purposes for $850,000. When she inherited the cottage the value of the cottage was $725,000. Her parents would have paid for any capital gains prior to Stacy inheriting the property. Stacy’s final tax return needs to show the $67,500 of taxable capital gains (50% of $850,000-$725,000).
- The last example is for those that pass away with non-registered investments like stocks or mutual funds. Barry worked for the same company for 32 years and as a result held $325,000 worth of stock of the company he worked for. When Barry passed away, the stocks were deemed to have been sold for tax purposes. the adjusted cost base (ACB) of the shares were calculated to be $110,000. At death, Barry has $215,000 of capital gains of which 50% is taxable. Barry’s final tax return must show $107,500 of taxable capital gains plus and dividends he would have received from the beginning of the calendar year.
As you can see from these examples, the deemed disposition (sale of assets for tax purposes) can potentially trigger a lot of taxation. In any of these examples, if there was a spouse as a beneficiary, there would be some rollover provisions where the tax may not be triggered now but deferred until later.
Are there other taxes on assets at death?
What we’ve talked about so far is the tax when you earn income. Remember that at death there is no tax on the asset but there is a potential deemed disposition of the asset for tax purposes.
In addition to income tax, provinces will have what is commonly known as probate fees. Probate fees vary from province to province and are based on the total assets of the estate. Let’s use Jake’s estate as an example:
- Personal residence = $590,000
- Bank account = $22,000
- Cottage = $225,000
- Non-Registered Investments = $85,000
- RRSPs = $90,000
- TFSA = $48,000
- Life insurance death benefit = $150,000
For probate purposes, assets with a named beneficiary like life insurance, RRSPs, and the TFSA are not included. They are deemed to bypass probate with the direct beneficiary designation unless the designation is the estate. In addition to these direct beneficiary designated assets, joint assets are typically not included for probate because the surviving joint owner becomes the owner of the asset.
So, in Jake’s example, his total estate would be worth $922,000 (1+2+3+4)
If Jake Lived in Alberta, the total probate fees would be $525
If Jake lived in BC, his total probate fee would be about 1.4% of the total value of the estate = $12,900
If Jake lived in Ontario, his probate fee would be about 1.5% = $13,800
If Jake lives in Halifax, his probate fee would be about $15,000
As you can see, every province and territory has different probate fees. TaxTips.ca has a great resource outlining all the current probate fees across the country.
Related Article: Understanding Taxes and Probate Fees
Putting it all together
So in Canada, there is no inheritance tax and technically no estate tax (where you pay a tax based on the total assets of the estate). There is, however, income tax based on the final tax return of the deceased filed by the executor and probate fees determined by each of the provinces. Probate fees and income tax are distinct and separate. If we look at Jake’s example, there would be income tax on the $90,000 RRSP at death but no probate fees on the RRSP if it had a direct beneficiary designation.
Estate planning and taxes can be complicated. Because everyone’s situation is different and unique it’s always advisable to seek professional help from a financial advisor, accountant or lawyer.
Great article. However, I believe if Jake dies in Alberta his Probate fee would not be $525. Instead, only the maximum of $400 would be payable
Correct. The $400 is an old number. Thank you for pointing that out.
It would have very much more helpful, if you had included a date of publication on the article, so we would know how recent this actually is. If there is a date on the article, I apologize for my blindness in not seeing it.
Question. My aunt passed away in b.c. she left my mother approximating 300,000 dollars worth of investments. These were “cashed out”, and the money was forwarded through the estate. It’s been 2 months. She was just told by my uncle, that she was responsible for a 60,000 dollar b.c. tax. My mother lives in Alberta.
Does this sound right?
Who pays the taxes on the executors or administrators fees. The estate… Right??
Did you get an answer to your question? Who pays the taxes on the executor and administrator fees? I don’t see one in the comments…
I guess we should all move to Alberta just before dying.
Various provinces have different estate tax. These estate taxes can be avoided with some planning. Probate does not necessarily require legal services. We did the Probate on my mothers estate in BC. Bought a kit at Staples, read it a few times, and then completed the forms and submitted them to the court. Very simple. Three weeks later we had the release.
Clearly the usual income tax returns etc are required.
Are there taxes on the inheritance when a child inherits all (or a portion) of a parent’s primary residence?
Dave, your answer is incorrect. Yes, there are taxes on a primary residence if the property inherited is over 1.24 acres (0.5 hectares) It is extremely unfair, especially when the land is in the ALR and cannot be subdivided. A child can inherit a primary residence in a subdivision worth up to three million dollars and not be taxed. But on the next road over where there is land, the child will pay Property Transfer Tax on the land over 1.24acres.
Can you expand on the RRSP? I have multiple RRSPs at different institution (some are multiple GICs). How can I make sure that all the RRSPs are transfer (tax deferred) to my wife directly (i.e. under her name) instead of going to the estate and being “cashed” then?
Can I just add a line in my will or do I need to contact every institution and indicate my wishes?
Thank you for the info you might find.
Ontario.What if the children end up taking monies from their inheritance to pay final costs of the estate? Investments transferred at time of death to keep the estate at a certain amount.
As a retired lawyer one of the issues I found with RRSP’s which flow into an estate where there is no designated beneficiary is that not only does the money flow into the deceased’ return to date of death but typically even a modest sum will result in an increase in the tax rate to the maximum. So the typical retiree who enjoyed the benefit of a lower tax rate will see the estate hit with a significant tax liability..which will result in the beneficiaries exclaiming ” but Dad always paid his taxes!”
awesome article lm dealing with the death of my dad so confused to what lm entitled to as the oldest daughter my third sister is looking after the will
To save probate fees, some older people may decide to change title to the residence into joint tenancy with an adult child. This is probably a mistake since the parent may end up dispossessed of the residence to satisfy claims of creditors of the adult child or his/her spouse.
Good point and I generally agree. I’ve read however that 9 out of 10 seniors will be diagnosed with a terminal illness, so that could affect the decision. Also JWROS can create sibling problems.
In BC probate is 1.4% so having the principal residence in the Will while costly, may be good insurance and the most prudent way to maintain estate harmony after death.
So, based on the information in your article, please confirm the following: If my mom has a RRIF upon death and her spouse is deceased, can she designate her 3 children as equal beneficiaries of the RRIF (rather than the Estate) and therefore the RRIF distribution would not be subject to probate fees in BC?
Valuable info. Next tell us how to avoid or lessen probate fees.
RIF and RRSP are only transferable to a spouse to avoid tax. Probate can be avoided if any beneficiary is named so it won’t go to the estate
So as to be clear, only a spouse can be named as beneficiary of an RRSP or RRIF. At the owner’s death, the monies are then transferred into the name of the spouse and income tax becomes payable once the spouse starts to draw any monies. So you have a delay in the payment of income tax, not an actual avoidance of income tax.
Quite right; it is a delay of income tax. Most spouses are likely to draw a similar amount that the deceased drew, increasing income tax proportionally, while avoiding the real whammy of taking the entire amount as income in a single year
Additionally, If you have a TFSA account you should name your spouse as “Successor holder”. This will avoid probate and allow the spouse to maintain the tax free status of the money.
If you want to name children/Grandchild on your TFSA you can name them beneficiaries and state the percentage each is to get. This will also avoid the account being part of probate. They get the money tax free but cannot protect it from future investment tax unless they have room in their own account.
There is an unfairness in the way the CPP is calculated with respect to the surviving spouse: the maximum CPP any one person can get is the maximum for a single individual.
This means that if the surviving spouse was receiving less than the maximum, then he/she will have it topped to a maximum of (I think) 60% of the deceased spouse’s CPP. However, if the surviving spouse was already receiving the maximum, he/she will get NOTHING from the CPP as survivor benefits!
In addition, the deceased spouses’s OAS is not going to be paid in any amount to the surviving spouse. The only possible help to the surviving spouse would come from the GIS if the surviving spouse is in quite a difficult financial situation.
It is this scenario that MUST be taken into account in estate planning.
No sure how we got onto CPP survivor benefits however. If the surviving spouse has their own CPP they will never under any circumstances get 60%. Because of the calculations it will always be significantly less.
For example a relative of mine was getting his own 440.00 CPP when his wife died he only got 43% of hers.
The only time a survivor gets 60% is if they don’t have and will never get a pension of their own. In other words the survivor never worked and contributed to CPP.
Estate Tax. Call it what you want but the deemed disposition of assets and the payment of taxes upon death are estate taxes.
The USA has “Estate Taxes” but only on amounts over 5.4 million. So if the deceased dies with a capital gain on investments they can be transferred to others… not just wife, at fair market value. However because they have the 5.4 million rule they also cannot just give money away during their lifetime. They have a gift tax. Since they have the 5.4 M amount its estimated to affect only the top .2% of the population.
“If you want to name children/Grandchild on your TFSA you can name them beneficiaries and state the percentage each is to get. This will also avoid the account being part of probate. They get the money tax free but cannot protect it from future investment tax unless they have room in their own account.”
Good tip, Dave.
So if I am a resident of Ontario and the beneficiary of a notarial will for a deceased person who was a resident of Quebec, do I have to pay probate fees for Ontario.
If a farm owner in Alberta (receiving annual rental income from the land) dies, and the farm is valued at say $500,000.00 does that mean the farm is also deemed to be sold at his death? If so, wouldn’t a life time capital gains deduction still be applicable?
Upon death a Rrif was jointly inherited as part of the estate. Who pays the tax on the Rrif the deceased or the beneficiary. Does the beneficiary have to claim as income.
I thought there was a question concerning the tax consequences of leaving a RRIF (or an RRSP) account directly to a beneficiary. Meaning “who pays the tax”? I did not see an answer directly to that question. Perhaps you could deal with that issue? Thank you.
(I anticipate that it’s the wording of the will that governs the point. The result could be catastrophic if the estate were to pay the tax on the RRIF/RRSP since the income tax payable could wipe out the rest of the estate leaving nothing to the other beneficiaries. ((Unless the beneficiary is a spouse or a minor child, who – as I understand it) would then pay the tax themselves when the money comes out of the account a bit at a time.)
When I die I left everything in my will to my 2 adult children. If my house sold for Two hundred and fifty thousand what would they have to pay the government. We bought the house 45 years ago for $35,000 plus $26,000 thirty years ago for an addition.
I just went through this myself. Tell your children to have your primary residence professionally assessed soon after you pass. This is what the probate fees will be based on. Your kids will have to pay 1.4% in BC of the total estate. If they fill out the probate forms themselves they will save a lot of money. Then your kid’s will have to see a Notary Public to have your house changed into an estate with land titles dept. As long as your house is not on land in excess of 1.24acres they won’t have to pay property transfer tax. Then they have to file again, to have the title changed from the estate to their names with the land title office. If they sell your home, then they will be taxed on any capital gains from the time you died to what they sell the house for if there is an increase in value. It is extremely costly to your children to probate your estate and to sell your residence. They must have cash in order to accomplish this. If you have the ability to get a TFSA and put at least $40,000.00 naming your child as the beneficiary, they can use that to pay the greedy government who has their hands in everyone’s pockets after you die.
I am an executor for a friend and have to renovate and sell his primary residence condo after his passing away. Does the $$s from the sale become part of the probate amount in Ontario. Also he has some $$s in his saving account, does that amount become part of probate amount in Ontario. He has named beneficiaries for his TSFA. I assume that we have to pay taxes on his balance RIF amount. Your reply is greatly appreciated. Also appreciate if you can give me the right procedure to do things – sell or appraise the condo n then file the probate.
Did not notice any comments regarding the Estate Administration Tax (Ontario) where (after 2020-01-01) the estate administration tax will be calculated as $15 for every $1,000 (or part thereof) of the value of the estate over $50,000. (Other websites state there are no estate taxes in Canada.) Not sure about the other provinces (with the exception of Alberta which does not have a similar tax).
That tax (the govt calls it a “fee”) has been around for many years and trebled literally from one day to the next without much (if any) notice. Prior to the increase, all the property being probated was taxed at 1/2 of 1 percent.
I already have a principle residence and I am going to inherit a small property/house incl lot .
I have the FMV from the property value based on appraisal from the inheritance.
If I want to sell this small property , do I pay capital gain/ loss, calculated as Selling price less the FMV (appraised value from inheritance ) ?
AS I didn’t pay anything for this property , or do I have to pay 50% of the selling price / capital gain , calculated as Sale price -0, as I paid 0 for it ?
What if the father, who is a non-resident of Canada living outside of Canada, died outside of Canada. Since he is a non-resident, he is not obligate to pay Canadian taxes. Then, will there be any taxes for his son, who lives in Canada, to inherit his father’s wealth?
There is still no tax to pay in Canada. However, you must still file — by mail, not electronically — form T1142.
NB: you must file this on time! I failed to file mine on time and have just been penalized $2500 plus interest!
What happens if the estate does not have sufficient funds to pay the triggered income taxes from deemed dispositions (e.g. real estate)? Would the property be disposed of to pay the triggered tax gain in that case? Or would the tax burden then fall on to the estate’s beneficiaries?
Am beneficiary of a ira. I’m Canadian he was American . How do I bring the funds to Canada from the states? And does he pay the taxes or am I having to put the amount on my taxes? Please help ty
Hello 🙂 My dad died 7 months ago. He left me ..(well i did add my tow brothers to be fair.) My brothers are saying we all have to pay 25 % inheritance taxes on the money my Dad is leaving us.. The amount is 120,000 . This is just money , no housing involved as my dad lived with me after his wife died. Before then they were living in a retirement home.. I think they are lying to me. Can you please help me.. We all live in Ontario, Canada.. Sincerely Thank you for your time
So if Alice and bob leave their two sons a home that is worth 1M at their time of death, and their sons decide to sell it, what tax should the two sons be expected to pay?
Hi Jim, I am the executer of my parents estate. My father passed away on January 1st and my mother on January 4th. They did not have much in terms of assets with the exception of their home. My son is going to buy the house from their estate. The house is valued at $220K and I am looking to sell it to him for 175K with the other 45K being “gifted equity”.
My question is does their estate have to pay capital gains on the sale of the home? (it was their primary residence).
Note: 90K is still owed on the mortgage.
Hi Jim, what happens if i have foreign property and assets? Will they be taxed the same ways as if they were Canadian property and assets? Also, what if the beneficiary does not want to dispose of some properties that is not their primary residence? How would the tax be paid as if they were sold?
I have a question regarding the Capital gains tax that the estate will have to pay. When my dad purchased the property it was bare land with no home on it.
He purchased the land for approximately $15,000.00, he then had to put in power and power lines the well and the septic as well as build the house. From my understanding the capital gains is based on the difference of the purchase price and the new value but will the cost to build the residence be taken into account? If so, how do we prove the cost to build at that moment in time so that this amount can be taken into consideration when calculating the capital gains tax amount, my dad didn’t keep receipts for that many years.
Thank you for your assistance!
I have a question… My grandmother passed away 17 years ago. Last year we found a share certificate in a safety deposit box that belonged to her. As the executor of her estate, my father bequeathed the certificate to my brother and me. At her time of death the shares were worth $1.35 but the company was recently bought out at $61.50 per share. How would the taxes work on that? Thanks in advance for any help.
Our son is a non-resident Canadian citizen living in the USA. Can he inherit my property and other assets like cash without paying any taxes to CRA? As for the property he inherits, can he sell it and take out the money tax-free? thank you if you can explain.
What are tax rule with respect to a widow. My husband passed away and I have one asset that will go to probate as it is in his name and with me as the beneficiary. As well I have several properties that were in both names as joint tenants. Would they all be taxed upon transfer or would the tax be defered until they are sold?
Hi, My sister retired and passed away 2 months after, she already had it set up to take her lump sum package (PSPP) she never had a will, it now goes to her estate will it be taxable and if so how much….her estate will receive about $300,000.
Sorry should of told you Newfoundland, Canada
In BC does your principal residence need to be added to probate? and if yes, do you use the appraised value of the home, or the selling price?
so my mom died june 2019
her home sold dec 2020
the executor stole from home collections and monies
the lawyer is telling me the inheritance I am to receive is holding back 20k from the amount I was to have for me to pay 1/3 of the taxes owed