Inheritance Tax in Canada: What the Estate Pays and What Heirs Owe

In most cases you don’t pay tax on an inheritance you receive in Canada. The CRA lists most gifts and inheritances among amounts you don't report or pay tax on, so receiving one isn't income to you, but income earned on it afterwards, such as interest, is taxable. The tax comes earlier, on the final return of the person who died. Unless it goes to a spouse or common-law partner or another exception applies, that return treats their capital property, such as shares, a cottage or a rental, as sold just before death, and generally counts the value of an RRSP as income for the year of death. In Ontario, for example, the estate administration tax is also charged on the estate’s value when an estate certificate is issued. Before distributing what’s left to the heirs, the executor can get a clearance certificate from the CRA confirming the estate has paid the income tax it owed. Jump to receiving an inheritance or lottery and gambling winnings.

Taxes at death: what the estate pays

The final return of the person who died reports:

income they earned up to the date of death;
gains on capital property, which is treated as sold just before death;
generally, the value of an RRSP, and amounts from a RRIF (the exceptions for a surviving spouse or partner are below);
the credits and deductions they are entitled to.

In Ontario, the estate administration tax is also charged on the estate’s value when an estate certificate is applied for and issued.

The deemed disposition: capital property is taxed as if sold

The CRA calls this a deemed disposition: no sale happens, but the person who died is treated as having sold their property just before death, which can produce a capital gain or loss. Capital property includes homes and cottages, stocks, mutual funds, crypto-assets, and personal belongings such as art or jewellery. The full rule:

Capital property the person owned is considered sold at fair market value immediately before death, and the gain or loss is reported on Schedule 3 of the final return.
For depreciable property used to earn rental or business income, the deemed sale can also mean recapture of capital cost allowance or a terminal loss.
Property transferred to a surviving spouse or common-law partner who is resident in Canada at the time of death passes on a tax-deferred basis: the gain or loss is postponed until the spouse or partner sells, or is deemed to sell, it.
The rollover applies only if the person who died was resident in Canada immediately before their death.
For the rollover, the property must be locked in for the spouse or partner no later than 36 months after the death.
If the property won't be locked in within 36 months, the legal representative can ask the director of their Tax Services Office for an extension, as soon as possible before the period ends.
The legal representative can elect out of the rollover in the final return, property by property, so that property passes at its fair market value.
A testamentary spousal or common-law partner trust qualifies if it is resident in Canada, the property is locked in for it within 36 months of the death, the spouse or partner is entitled to all of its income, and no one else can receive or use its income or capital during their lifetime.
Property used in a farming or fishing business and left to a child can also be transferred on a tax-deferred basis.
For that, the child must have been resident in Canada immediately before the death, the property must be locked in for the child within 36 months, and the deceased, their spouse or partner, or a child or parent of the deceased must have used it principally in farming or fishing on a regular and ongoing basis.
Some or all of the gain on a principal residence may be exempt, but it must still be designated on the final return (Schedule 3 and Form T1255).

The taxable part of the gain, set by the inclusion rate (currently 50%), is added to the income on the final return.

Shares bought for $50,000 are worth $150,000 at death and go to an adult child. The final return reports a capital gain of $100,000, and at the 50% inclusion rate, $50,000 is added to that return’s income. The child’s cost for the shares is $150,000.

Leaving property to a spouse or common-law partner

When the conditions above are met, property left to a surviving spouse or common-law partner (or a qualifying spousal trust) carries no gain on the final return: it is reported at its adjusted cost base, so the gain shown is zero. The gain is postponed until the spouse or partner sells the property or is treated as selling it, for example at their own death. Left to a spouse instead, the same shares show no gain on the final return, and the spouse’s cost stays $50,000. The legal representative can elect out of the rollover, property by property; the property is then treated as sold at its fair market value just before death, and that value becomes the spouse’s cost.

RRSPs, RRIFs and TFSAs

The CRA generally treats a person who dies with an RRSP as having received its full value just before death, and that amount is included in their income for the year of death. The exceptions, from the RRSP at death page: At death, an RRSP or RRIF is taxed on the final return unless it goes to a qualifying survivor who may be able to defer the tax: a spouse or common-law partner (who can transfer it to their own RRIF or an annuity, or to their own RRSP if 71 or younger at the end of the year of the transfer), a financially dependent child or grandchild with an impairment (RRSP, RRIF, RDSP or an annuity), or another financially dependent child or grandchild (an annuity to age 18). A RRIF can continue with a spouse or common-law partner as the new annuitant when the RRIF contract or the will says so in writing. Only a spouse or common-law partner can be a RRIF's successor annuitant: named in the RRIF contract or the will, they take over the RRIF and its payments; if not named, they can still become the successor if the legal representative consents and the carrier agrees. (RRIF successor and beneficiary rules).

If an RRSP grows between the date of death and the payout, that growth is income to the beneficiary or the estate for the year it is received, reported on a T4RSP slip.

For a TFSA held as a deposit or an annuity contract, the CRA says no income should be reported on the final return, and for an annuity contract, earnings after the death are taxable to the beneficiaries in the year they receive them. How it passes depends on the designation, as what happens to a TFSA when you die explains:

Successor holder. Only a spouse or common-law partner can be named successor holder (Quebec doesn't recognize the designation, except for TFSA annuity contracts); they become the new holder of the same TFSA, which stays tax-free, without using their own contribution room.
Designated beneficiary. A designated beneficiary (anyone you name; Quebec doesn't recognize the designation on deposit or trust TFSAs) receives the TFSA's value at death tax-free; earnings after the date of death are taxable to them. A surviving spouse or partner named as beneficiary may be able to contribute the payment to their own TFSA as an exempt contribution.

The family home

The gain on a home that was the principal residence of the person who died may be exempt in whole or in part, but it must still be designated as a principal residence on the final return, even when the whole gain is exempt (the last item in the rule above). The principal residence exemption guide explains how the exempt part is worked out.

Probate

Probate is separate from income tax. The final return is filed with the tax package for the province or territory where the person lived when they died. Probate fees are a separate charge on the estate: Ontario’s estate administration tax, for example, is charged on the value of the estate when an estate certificate is applied for and issued. In Ontario, RRSPs, RRIFs and TFSAs with a named beneficiary, and insurance paid to a named beneficiary, are among the assets not included in that value. The fee in each province is on probate fees by province, and avoiding probate on registered accounts covers beneficiary designations.

Receiving an inheritance

As the opening explains, an inheritance you receive generally isn’t income to you. Gifting money to family covers gifts made while the giver is alive. What the money earns once it is yours, such as interest, is taxable.

Your cost for inherited shares and property

When you inherit property, your cost is the amount the person who died was treated as receiving for it, which is usually its fair market value right before the death. The gain up to that point was taxed on their final return, and when you sell, your gain is measured from that value. Property inherited from a spouse or common-law partner, and farm property or a woodlot passed to a child, can be treated differently.

You inherit shares worth $150,000 at the date of death and later sell them for $170,000. Your capital gain is $20,000, and $10,000 of it is taxable at the 50% inclusion rate.

Keep a record of each asset’s value at the date of death; the adjusted cost base page explains how later purchases change it.

Income paid to you before the estate is settled

An estate can have to file its own T3 return. When it allocates income to a beneficiary resident in Canada, the executor issues a T3 slip, and you report that income on your own return. The T3 slip page explains the boxes.

Registered plans and life insurance

An RRSP or TFSA you inherit is covered in the section above: growth in an RRSP after the death, and a TFSA’s earnings after the death, are taxed to the beneficiary. Most amounts received from a life insurance policy after someone’s death are also among the amounts you don’t report.

Inheritances across borders

If you report foreign property on Form T1135, its cost is its fair market value at the time the gift, bequest, or inheritance was received.

If you live outside Canada and inherit from a Canadian estate, estate income paid or credited to you is subject to Part XIII withholding tax at 25%, a rate a tax treaty can reduce. The non-resident tax guide has more.

Filing the final return and paying the tax

The final return’s due dates, from the CRA:

Date of death	Final return due
January 1 to October 31	April 30 of the following year
November 1 to December 31	6 months after the date of death
Deceased or their spouse or common-law partner was self-employed, death before December 16	June 15 of the following year
Deceased or their spouse or common-law partner was self-employed, death from December 16 to December 31	6 months after the date of death

The later self-employed date applies to filing; the CRA says the payment due date does not change. Before distributing the estate, the executor can ask the CRA for a clearance certificate (Form TX19), which lets them distribute without risk of being personally responsible for tax still owing. Once they have it, unpaid tax can be collected from the estate or from the beneficiaries who received the assets. How to file taxes for a deceased person covers the optional returns, the T3 return and the certificate.

Ways the tax at death is reduced

The rules above are where the tax at death can be lowered:

leaving capital property to a spouse, common-law partner or spousal trust postpones the gain (see above);
an RRSP or RRIF that goes to a qualifying survivor isn’t taxed on the final return (see RRSPs, RRIFs and TFSAs);
a principal residence designation can exempt a home’s gain (see the family home);
donations: on the final return, gifts can be claimed up to 100% of the deceased’s net income, and any excess can be claimed on the previous year’s return;
trusts: see testamentary vs inter vivos trusts and family trusts.

Reducing taxes in retirement covers drawing down an RRSP or RRIF over several years.

Lottery and gambling winnings

A lottery prize isn’t taxable as income or as a capital gain, unless it can be considered income from employment, a business or property, or a prize for achievement. A non-cash prize, such as a car or a house, has a cost equal to its fair market value when you won it, so a later gain or loss is measured from that value.

Other gambling can produce business income or a business loss when it amounts to carrying on a business of gambling, and the Tax Court of Canada (in Leblanc) said that gambling, even regular and systematic gambling, is not generally a commercial activity except in very exceptional circumstances. The CRA’s folio looks at how organized the activity is, any special knowledge or inside information that reduces chance, whether the aim is pleasure or a livelihood, and the number and frequency of bets.

Income the winnings earn, such as interest on a deposit, is taxable and goes on your return. Giving some of the winnings to family is covered on gifting money to family, and the attribution rules explain when the income on a gift to a spouse or child is taxed to you. Finances after winning money covers planning.

Winning in the United States. The US taxes gambling winnings of non-residents at 30% of the gross proceeds, unless a treaty exempts them, but not wins at blackjack, baccarat, craps, roulette, or big-6 wheel. Under the Canada-US tax treaty, a Canadian resident can deduct wagering losses against those US-taxed gains as a US resident could. To claim a refund of tax withheld, you file Form 1040-NR.

Sources

The figures and rules on this page come from these sources, last checked against them between September 23, 2026 and November 13, 2026. How we check facts.