Is There Any Inheritance Tax in Canada? A Tax Expert’s Guide

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M. Hanif Shaikh

October 5, 2025

When a loved one passes away, families often face not only emotional loss but also questions about taxes. A common concern is whether Canada imposes an inheritance tax — a tax paid by beneficiaries when they receive money or property from an estate.

The short answer is no, Canada does not have an inheritance tax.
However, other taxes can still apply to the estate before assets are distributed. Understanding these rules can help families plan ahead and minimize unnecessary costs.

At MHS Tax, we help clients navigate the complex tax implications of estate transfers. Here’s what you need to know.

No Inheritance Tax for Beneficiaries

In Canada, beneficiaries do not pay tax on the inheritance they receive.
Whether they inherit cash, real estate, investments, or personal property, the amount is not treated as income.

The key tax obligations arise at the estate level, typically before beneficiaries receive their share.

Taxes That May Apply to the Estate

1. Deemed Disposition and Capital Gains

Under the Income Tax Act, when someone passes away, the Canada Revenue Agency (CRA) treats most of their assets as if they were sold at fair market value immediately before death.

• Any increase in value (capital gain) is included in the deceased’s final tax return, also called the terminal return.
• 50% of the capital gain is taxable at the deceased’s marginal tax rate.
• Certain assets, like the deceased’s principal residence, may qualify for the principal residence exemption, reducing or eliminating capital gains tax.

Spousal Rollover: Assets that pass to a surviving spouse or a qualifying spousal trust typically transfer on a tax-deferred basis, meaning the tax is postponed until the spouse later sells or passes away.

2. Registered Plans (RRSPs and RRIFs)

Registered plans such as RRSPs and RRIFs are fully taxable as income on the deceased’s final return unless they are transferred to:

• A surviving spouse or common-law partner,
• A financially dependent child or grandchild under 18, or
• A financially dependent child or grandchild with a disability.

Without a qualified rollover, the full value of the registered account is added to the deceased’s income in their year of death.

3. Estate Administration Tax (Probate Fees)

While not an inheritance tax, most provinces charge probate fees (estate administration taxes) when the executor applies for court certification of the Will.

For example:

• Ontario: $0 on the first $50,000 of the estate’s value and 1.5% on amounts above $50,000.
• Other provinces have their own rates or flat fees.

Probate fees are paid by the estate before distributions to beneficiaries.

Planning to Minimize Taxes

Good estate planning can reduce the tax burden on your estate and maximize what your heirs receive. Strategies may include:

• Naming beneficiaries for RRSPs, RRIFs, and TFSAs to bypass probate.
• Considering joint ownership with right of survivorship (with professional legal and tax advice).
• Establishing trusts to manage wealth transfer and defer taxes.
• Making charitable gifts during life or in the Will to benefit from donation tax credits.
• Keeping accurate records of property purchase prices and capital improvements.

Key Takeaways

• Canada has no inheritance tax, so beneficiaries do not pay tax on what they inherit.
• Taxes apply at the estate level through capital gains on death, income tax on registered plans, and provincial probate fees.
• Spousal rollovers and strategic estate planning can defer or reduce taxes.
• Professional legal and tax advice is essential to avoid unexpected liabilities.

Work with Our Tax Team

At MHS Tax, we help individuals and families understand the tax implications of estate transfers and implement strategies to minimize taxes and probate fees.

Contact us today to speak with a tax professional and plan effectively for your estate.