Does Canada have an inheritance tax, or does my client's estate pay something else when they die?
Canada has no inheritance tax in 2026, and most inheritances are not taxed in the beneficiary's hands. Instead, the deceased's final return taxes half of each capital gain deemed realized at death under ITA 70(5), plus the full value of an RRSP or RRIF not left to a spouse. Provinces add probate: Ontario charges 1.5% above $50,000.
Who pays the tax when a Canadian dies, if not the heirs?
The deceased does, on the final return. The CRA lists "most gifts and inheritances" among the amounts a person doesn't report or pay tax on canada.ca. What Canada taxes instead is the deceased, who is treated as having sold all their property just before death, with the gains reported on line 12700 and Schedule 3 of the final return
canada.ca.
| Asset | Tax on the final return | Ontario estate administration tax base | Tax for the heir later |
|---|---|---|---|
| Nonregistered investments, cottage, rental property | Deemed sold at fair market value, half the gain taxable | Included if it passes under the will | Only growth after death |
| Principal residence | Gain exempt for designated years, still reported on Schedule 3 and Form T1255 | Ontario real estate included, less any mortgage | Only growth after death |
| RRSP or RRIF left to the children or the estate | Full fair market value is income | Excluded if a beneficiary is designated | None on the value at death |
| Any of the above left to a resident spouse | Rolls over at cost, no tax now | Included if it passes under the will, excluded if held jointly and passing to the spouse automatically | The spouse is taxed on the full gain later |
| TFSA | Not taxed up to its value at death | Excluded if a beneficiary is designated | Earnings after death are taxable |
| Life insurance paid to a named beneficiary | Most death benefits are not taxed | Excluded | Interest earned on the payout is taxable |
The rule is paragraph 70(5)(a) of the Income Tax Act, which deems each capital property disposed of immediately before death for proceeds equal to its fair market value. Paragraph 70(5)(b) then gives whoever inherits it a cost equal to that same value laws-lois.justice.gc.ca. Under 38(a) only half of a capital gain is taxable
laws-lois.justice.gc.ca, and even a fully exempt principal residence has to be designated on the final return
canada.ca.
Registered plans are harsher. The fair market value of an unmatured RRSP at death is reported in box 34 of the T4RSP and included in the deceased's income for the year of death, unless the whole plan goes to the surviving spouse and is transferred to their plan by the end of the following year canada.ca. A financially dependent child or grandchild has narrower exceptions, set out on our deemed disposition on death page. The TFSA and life insurance rows come from the CRA's list of amounts that aren't taxed
canada.ca and its TFSA beneficiary rules
canada.ca. The excluded rows in the Ontario column come from the province's estate administration tax page
ontario.ca.
What does probate cost in Ontario, BC and Alberta?
Probate is the closest thing Canada has to a death tax, and it is provincial, so the bill depends on where your client lived and what they owned there. Here are three provinces on the same $1.2 million of probatable assets.
| Province | How the fee is set | On a $1.2 million estate |
|---|---|---|
| Ontario | $0 on the first $50,000, then $15 per $1,000 (1.5%), with the value rounded up to the next $1,000 | $17,250 |
| British Columbia | Nothing up to $25,000, $6 per $1,000 from $25,000 to $50,000, then $14 per $1,000 above $50,000 | $16,250 |
| Alberta | Flat fee by net value of property in Alberta, from $35 up to $525 above $250,000 | $525 |
Ontario's rates apply to applications made on or after January 1, 2020. The value includes Ontario real estate less mortgages, bank accounts, investments and vehicles, but funeral costs, legal fees, credit card debt and lines of credit can't be deducted. The estate pays the tax when it applies for the estate certificate, and the Estate Information Return is due within 180 days after the certificate is issued ontario.ca. The full Ontario calculation is on our probate fees Ontario page.
BC's tiers are in section 2 of the Probate Fee Act. The value counts real and tangible property situated in BC, plus intangible property wherever it sits if the deceased was ordinarily resident in BC bclaws.gov.bc.ca. On $1.2 million that's $150 for the $25,000 to $50,000 band plus $16,100 on the $1,150,000 above it. Alberta's schedule tops out at $525 for net Alberta property over $250,000
alberta.ca.
None of it comes back on the income tax side: the CRA says funeral expenses, probate fees and estate administration fees can't be deducted on the deceased's returns canada.ca.
How much does a $1.75 million Ontario estate pay?
Your client, a widowed Ontario resident, dies in August 2026. She owns a $900,000 home with no mortgage, designated as her principal residence for every year, and a nonregistered portfolio worth $300,000 with an ACB of $180,000. Her $250,000 RRIF, $100,000 TFSA and $200,000 life insurance policy name her two children as beneficiaries. She received $30,000 of pension income from January to August.
| Asset | Value | Added to the final return | In the Ontario EAT base |
|---|---|---|---|
| Home (principal residence) | $900,000 | $0 | $900,000 |
| Portfolio ($120,000 gain, half taxable) | $300,000 | $60,000 | $300,000 |
| RRIF, children named | $250,000 | $250,000 | $0 |
| TFSA, children designated | $100,000 | $0 | $0 |
| Life insurance, children named | $200,000 | $0 | $0 |
| Pension, January to August | n/a | $30,000 | n/a |
| Total | $1,750,000 | $340,000 | $1,200,000 |
Federal tax on $340,000 at the 2026 brackets, before credits, is $86,176.05: 14% on the first $58,523, 20.5% to $117,045, 26% to $181,440, 29% to $258,482 and 33% on the last $81,518 canada.ca. Ontario income tax comes on top. Estate administration tax on the $1,200,000 that passes under the will is $15 × 1,150 = $17,250
ontario.ca.
Here is the gotcha. The RRIF went straight to the children, but its $250,000 sits on the final return, and the tax on it is paid out of the estate. Without the RRIF, the return would show $90,000 and federal tax of $14,646.01, so about $71,530 of the federal bill comes from the RRIF alone. If the will leaves the home and portfolio to different people than the RRIF designation does, the residuary heirs fund tax on money they never received.
If the estate can't pay, the CRA can collect from the RRIF beneficiaries. Under 160.2(2) a person who receives RRIF property is jointly and severally liable for a share of the increase in the deceased's tax caused by the RRIF inclusion, in proportion to what they received laws-lois.justice.gc.ca. Subsection 160.2(1) does the same for an RRSP.
Does leaving everything to a spouse remove the tax?
It defers it. Under 70(6), capital property left to a spouse or common law partner resident in Canada, or to a qualifying spousal trust, rolls over at the deceased's cost, provided it vests indefeasibly within 36 months after death, and the spouse takes over that cost laws-lois.justice.gc.ca. An RRSP that goes entirely to the surviving spouse and is transferred to their own plan stays off the final return too
canada.ca.
The gain and the registered balance are then taxed when the spouse sells or dies. So the second death is usually the expensive one, and that is when the probate and income tax figures above hit in full. The rollover rules, the election out of them and the loss carryback from the estate are on our deemed disposition on death page.
Filing dates and the optional returns, including the rights or things return that can split certain income onto a second return, are on our final return for a deceased person page.
When does a beneficiary pay tax on an inheritance?
Only on what the asset earns after death. Income the estate earns after the date of death goes on the estate's T3 return, not the final return canada.ca, and the estate may qualify for graduated rates as a graduated rate estate. Once property is distributed, the heir's cost is the fair market value at death under 70(5)(b), so only growth after that date is taxed when they sell
laws-lois.justice.gc.ca.
TFSA money follows the same line. A designated beneficiary pays no tax on TFSA amounts up to the fair market value at the date of death, but earnings after death and before the estate is settled are taxable, and taxable trust payments show up in box 134 of a T4A canada.ca. Likewise the CRA says income earned on any nontaxable amount, such as interest on an invested insurance payout, is taxable
canada.ca.
An inheritance from abroad is still not taxed in Canada, but keep an eye on reporting. A Canadian resident whose foreign property costs more than $100,000 at any time in the year files Form T1135, and the cost of inherited foreign property is its fair market value when received canada.ca. Our T1135 filing requirements page has the categories.
Sources
British Columbia Probate Fee Actbclaws.gov.bc.ca
Alberta court fees (surrogate matters)alberta.ca
Does my client report an inheritance on their own T1?
No. The CRA lists most gifts and inheritances among the amounts that aren't reported or taxed, though any income earned on them afterward is taxable canada.ca.
Are funeral costs or probate fees deductible on the final return?
No. The CRA treats funeral expenses, probate fees and fees to administer the estate as personal expenses that can't be deducted canada.ca. Ontario doesn't let them reduce the estate administration tax base either
ontario.ca.
Can US estate tax apply to a Canadian client?
Yes, if they own US property. Under Article XXIX B(8) of the Canada US tax treaty, when a Canadian resident who isn't a US citizen has a worldwide gross estate of US$1.2 million or less, the US can tax only property whose gain would be taxable in the US under Article XIII, such as US real estate. Under XXIX B(6), US estate tax paid can reduce the Canadian tax on US source income in the year of death, within the treaty's limits canada.ca.
Does naming beneficiaries on a RRIF avoid tax as well as probate?
It avoids Ontario's estate administration tax, which excludes registered plans and insurance with a designated beneficiary ontario.ca. It doesn't avoid income tax: unless the plan goes to a spouse, its value is still income on the final return
canada.ca. Before the executor pays out the rest of the estate, see our clearance certificate page.
General information for the tax year shown, not advice for a specific client. Confirm the facts before you file or remit.