Inheritance and Estate Tax in Canada

Canada does not impose a federal inheritance tax on recipients or a separate estate tax on the deceased's estate. The federal estate tax was abolished in 1972 when the modern capital gains tax was introduced. Provincial succession duties were also phased out by the mid-1980s. What Canada uses instead is a deemed-disposition mechanism under the Income Tax Act (ITA): on the date of death, the estate is treated as the deceased's final taxpayer, triggering capital gains and ordinary income on the terminal T1 return.

Does Canada have an inheritance or estate tax?

No federal inheritance or estate tax exists in Canada. Beneficiaries generally receive inherited assets without paying tax on the receipt. The tax falls on the deceased's estate via the terminal T1 return, not on the recipient. This is fundamentally different from the United States (federal estate tax with a USD 13.99 million exemption for 2025), the United Kingdom (40 percent IHT above the GBP 325,000 nil-rate band), and Germany (graduated Erbschaftsteuer). For a full cross-jurisdiction comparison of how Canada's approach compares globally, see the Canada country overview. Canada's absence of a formal estate tax does not mean death is tax-free: the deemed-disposition mechanism achieves similar revenue by taxing accrued capital gains in the deceased's final return rather than imposing a separate transfer tax.

What is deemed disposition at death?

ITA section 70(5) provides that a deceased taxpayer is deemed to have disposed of all capital property at fair market value (FMV) immediately before death. The legal personal representative (executor or estate trustee) reports the resulting capital gains or losses on Schedule 3 of the terminal T1 return. As of June 2026, the capital gains inclusion rate for individuals is 50 percent: half of the capital gain enters taxable income. For example, a deceased person holding a vacation property with an adjusted cost base (ACB) of CAD 200,000 and an FMV of CAD 800,000 at death generates a CAD 600,000 capital gain; CAD 300,000 is included in the terminal return as taxable income. That income is taxed at the deceased's marginal rate for the year of death, which may reach the top combined federal-provincial rate of roughly 50 percent in high-rate provinces, producing approximately CAD 150,000 of tax on the example gain. The CRA guidance on reporting capital gains on the terminal return is published at [SC1]. A principal residence is exempt from the deemed disposition under ITA section 40(2)(b) provided the deceased designated it as the principal residence for each year owned; the legal representative files Form T1255 with the terminal return to claim the exemption [SC2].

How does the spousal rollover work?

ITA section 70(6) provides the most important deferral available at death: capital property can pass to a surviving spouse or common-law partner (or to a qualifying spousal trust) at the deceased's adjusted cost base rather than at FMV. No capital gain is triggered on the terminal return for rolled-over assets. The surviving spouse inherits the deceased's ACB, and the deferred gain crystallises only when the surviving spouse later disposes of the property or dies. The rollover is automatic unless the executor elects out (sometimes beneficial to use capital losses or the Lifetime Capital Gains Exemption on the terminal return). Note that the spousal rollover under section 70(6) applies to capital property; the rollover for registered plans (RRSP/RRIF) operates under separate provisions described below. A spousal trust under section 70(6.1)(b) can hold rolled-over property while providing the surviving spouse with all income during their lifetime, with capital ultimately passing to specified beneficiaries such as children from a prior relationship. The trust itself faces a deemed disposition at the surviving spouse's death under section 104(4), at which point deferred gains crystallise.

How are RRSPs and RRIFs treated at death?

RRSP and RRIF balances are not subject to the section 70(5) deemed-disposition capital-gains rules. Instead, ITA section 146(8.8) deems an unmatured RRSP to have collapsed immediately before death: the full FMV of the plan is included in the deceased's income on the terminal T1 return as ordinary income, not as a capital gain. The same treatment applies to RRIF balances under ITA section 146.3(6). This is often the single largest item of income on a terminal return; a deceased person with a CAD 500,000 RRSP and no other terminal-return income would face a combined federal-provincial income tax bill in the range of CAD 220,000-250,000 depending on province. The CRA publication RC4177, Death of an RRSP Annuitant, details the mechanics [SC3].

The spousal rollover for registered plans operates under ITA section 146(8.1): if the surviving spouse or common-law partner is the designated beneficiary, the RRSP proceeds can be transferred directly to the surviving spouse's RRSP or RRIF without triggering income inclusion on the deceased's terminal return. The surviving spouse's RRSP/RRIF continues as a tax-deferred vehicle until the spouse withdraws or dies. A financially dependent child or grandchild (meeting the CRA's dependency criteria) may also receive a rollover into their own RRSP under specific rules, or use the proceeds to purchase an eligible annuity to age 18. For non-dependent, non-spouse beneficiaries, no rollover is available: the full FMV flows through the terminal return as income.

What are provincial probate fees?

Probate is the court process that confirms a will and grants the executor authority to administer the estate. Provinces levy fees (or taxes) on the estate's value as a condition of issuing an estate certificate (grant of probate). These fees are not a federal tax and do not replace any income tax. The table below summarises rates across major provinces; amounts reflect the estate's gross value, not taxable gains.

The Ontario Estate Administration Tax is filed via a prescribed return within 180 days of estate certificate issuance. Alberta's near-zero cap (CAD 525) makes it the most favourable province from a probate-cost perspective. Quebec's notarial will system bypasses probate entirely for notarial wills, resulting in minimal filing costs. For more on Ontario rates, see [SC4].

Assets that pass outside the estate avoid probate fees: jointly-owned property with right of survivorship, named beneficiary designations on RRSP/RRIF/TFSA/life insurance, and assets held in an inter vivos trust all transfer without probate. Ontario's secondary will procedure allows a testator to maintain two wills, routing assets that do not legally require probate (such as shares in a private corporation) through the secondary will and thereby excluding them from the EAT calculation.

Gifting property during your lifetime

Canada has no gift tax: the recipient of a gift pays no tax on receiving it. However, the donor of appreciated capital property is subject to deemed disposition under ITA section 69(1)(b): the transfer is treated as if the donor sold the property at FMV on the date of the gift. A parent transferring a vacation cottage with an ACB of CAD 100,000 and an FMV of CAD 400,000 to an adult child triggers a CAD 300,000 capital gain in the parent's hands, even though no cash changed hands. The recipient takes the property at an ACB equal to the FMV at the time of the gift. Cash gifts carry no deemed-disposition consequence because cash has no ACB differential. Gifts to a spouse or common-law partner may be subject to the attribution rules under ITA sections 74.1-74.5, which attribute income and gains back to the transferor spouse in certain circumstances. Qualified tax professionals can assist in structuring lifetime transfers to manage attribution and deemed-disposition outcomes; see the TaxPros directory for Canada to find Canadian tax professionals experienced in estate matters.

This page provides factual information about Canadian tax rules as of June 2026. Tax law changes frequently, individual circumstances vary, and nothing here constitutes legal or tax guidance. Consult a qualified tax professional for advice on your specific situation.