Families guide
Inheritance in Canada: what is taxed, who pays and what to do first
People ask how much tax they will pay on an inheritance. Usually none. The tax was charged one step earlier, to the person who died, and understanding that step is what protects the family.
How death is taxed
On the day someone dies, the tax system treats them as having sold everything they own at its market value. Any gain goes on their final tax return. Registered plans are added to income in full. The estate pays that bill, and what is left goes to the beneficiaries tax-free.
The main relief is the spousal rollover: assets left to a spouse or common-law partner can pass at their original cost, and an RRSP or RRIF can move into the survivor's own plan. The tax is postponed until the survivor sells, withdraws or dies. The other is the principal residence exemption, which generally shelters the family home.
- 1DeathEverything is valued at that date.
- 2Final returnGains and registered plans are taxed to the deceased.
- 3ProbateThe court confirms the executor. Ontario charges Estate Administration Tax.
- 4Estate returnsIncome earned after death is taxed in the estate.
- 5ClearanceThe CRA confirms nothing more is owed.
- 6DistributionBeneficiaries receive their shares, tax-free.
The three assets that create the bill
Registered plans
An RRSP or RRIF left to anyone other than a spouse (or, in limited cases, a dependent child) is income on the final return. A CAD 400,000 RRIF added to CAD 60,000 of other income in the year of death adds about CAD 192,153 of income tax in Ontario at 2026 rates. Nearly half of it is gone before the children see it.
Property that is not the home
A cottage, a rental or land bought decades ago carries the whole gain since purchase. Half the gain is taxable. A CAD 600,000 gain adds roughly CAD 143,249 of tax.
Investments outside registered plans
Shares and funds are treated as sold. The gain since purchase is taxed the same way.
A TFSA is different: its value at death is not taxed. Life insurance paid to a named beneficiary is not taxed either, which is why it is often used to fund the bill on a cottage or a business.
Ontario, 2026 rates. Illustrations: the RRIF is added to CAD 60,000 of other income, the gains to CAD 80,000.
Probate in Ontario
Probate is the court confirming that the will is valid and the executor has authority. Banks and the land registry usually insist on it. Ontario's Estate Administration Tax is charged on the value of the estate that goes through probate: nothing on the first CAD 50,000, then CAD 15 for every CAD 1,000.
| Estate value | Estate Administration Tax |
|---|---|
| CAD 240,000 | CAD 2,850 |
| CAD 500,000 | CAD 6,750 |
| CAD 1,000,000 | CAD 14,250 |
| CAD 2,000,000 | CAD 29,250 |
| CAD 3,000,000 | CAD 44,250 |
Some assets pass outside the estate and are not counted: registered plans and insurance with a named beneficiary, and property held jointly with a right of survivorship. That is useful, and it is also where well-meant shortcuts go wrong. Adding an adult child to the title of your home or account exposes it to their creditors and their separation, and on a property that is not their home it can create tax. Plan it; do not improvise it.
If you are the one inheriting
- Cash. Not income. Nothing to report for receiving it. What it earns afterwards is yours to report.
- A house or cottage. Your cost is its market value on the date of death. If you sell soon after for about that value, there is little or no gain. If you keep it and it rises, the gain from that date is yours. If you move in, it can become your principal residence from then.
- Investments. Same rule: your cost is the value at death. Get that value in writing now. In ten years nobody will remember it.
- An RRSP or RRIF. If you are the spouse, it can roll into your own plan. If you are a child, the plan pays out to you and the estate owes the tax. This mismatch causes more family arguments than anything else in estates.
Inheriting from outside Canada
Canada does not tax you on receiving an inheritance from abroad, and bringing your own money into Canada is not taxed. The other country may have its own estate or inheritance tax, settled there.
What changes is what you must report afterwards. As a Canadian resident you are taxed on income from anywhere, so rent from an inherited flat or interest on a foreign account goes on your Canadian return, with a credit for foreign tax paid. And if the cost of your foreign property is more than CAD 100,000, Form T1135 is required every year you hold it. For inherited property, cost is generally its market value when you inherited it.
If you are the executor
You are personally responsible for getting this right. In order:
- Find the will and secure the assets. Tell the banks, the CRA and Service Canada.
- List every asset and debt with its value at the date of death.
- Apply for probate if it is needed.
- File the final return, any earlier returns that were missed, and returns for the estate.
- Pay debts and taxes.
- Ask the CRA for a clearance certificate.
- Only then, distribute what is left.
The step people skip is the sixth. If you hand out the money and the CRA later assesses more tax, it can come to you.
Worked examples
Illustrations built from the kinds of situations we see. They are not client files, and the numbers are simplified.
Everything to the surviving spouse
- The situation
- A husband dies leaving a home, a RRIF and investments to his wife.
- The move
- Use the rollovers: the RRIF moves into her plan, the investments pass at his cost, the home stays exempt. Then plan for the next step, because on her death there is no rollover left.
- What it changes
- No tax now. The family uses the time to look at insurance, gifting and which assets the children should eventually receive.
Three children and a cottage
- The situation
- A parent leaves a cottage bought in the 1980s to three children. The estate has little cash.
- The move
- Value the cottage, compute the gain on the final return, and work out how the tax is paid: from other assets, by one child buying out the others, or by a sale.
- What it changes
- The children decide with numbers in front of them, before the tax is due, rather than being forced to sell.
A flat inherited overseas
- The situation
- A Canadian resident inherits an apartment abroad worth CAD 400,000 and rents it out.
- The move
- Record the value at the date of inheritance, report the rent each year with a foreign tax credit, and file Form T1135.
- What it changes
- No tax on receiving it, no penalty for missing the form, and a documented cost for the day it is sold.
Mistakes to avoid
- Naming a child as RRSP beneficiary and assuming the others are treated equally. The estate pays the tax.
- Adding a child to the title of a home or account to "avoid probate" without advice.
- Distributing the estate before the clearance certificate.
- Not recording the value of inherited property at the date of death.
- Forgetting Form T1135 for an inherited foreign property or account.
- Assuming the survivor needs to do nothing. The second death is where the tax lands.
Your checklist
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Tools for this job
Who does what
What The Accounting Doc does
- Prepare the final return, estate returns and the clearance request
- Estimate the tax while the will is being planned, not after
- Report inherited foreign income and property
- Explain to the family, in plain numbers, who ends up with what
Who else you need
- Estates lawyer
- The will, probate, trusts and any dispute. We do not give legal advice.
- Licensed insurance broker
- Life insurance to fund the tax.
- Appraiser
- Date-of-death values for property.
Sources
- Ontario, Estate Administration Tax
- Canada Revenue Agency, tax rates and income brackets for individuals, 2026
- Canada Revenue Agency, T4032-ON Payroll Deductions Tables, Ontario, effective 1 January 2026
- Canada Revenue Agency, Foreign Income Verification Statement (Form T1135)
- Prime Minister of Canada, statement on the capital gains inclusion rate and the Lifetime Capital Gains Exemption, 21 March 2025
Figures checked on 13 November 2026. Tax rules change and your facts matter: this guide is education, not advice for your situation. We do not give legal, immigration or investment advice.