Inheritance Tax in Canada: What Is Taxed When Someone Dies

Is there inheritance tax in Canada?

No. The Income Tax Act has no tax charged on the person who receives an inheritance, and there is no federal estate tax on the size of an estate. The “death tax” people talk about is the income tax on the deceased’s final return, plus provincial probate fees.

The CRA’s capital gains guide explains the knock-on effect for heirs: when you inherit property, your cost is usually the deemed proceeds of disposition for the person who died, which is normally the fair market value just before death. So the gain that built up during the deceased’s life is taxed on their final return, and you are taxed only on growth after you receive the asset.

The deemed disposition at death

According to the CRA, when a person dies they are considered to have sold all their capital property just before death, even though nothing was sold. This deemed disposition covers real estate, including the home, stocks, mutual funds, crypto-assets and valuable personal belongings such as art or jewellery. Each gain or loss goes on Schedule 3 of the final return, and the taxable part flows to line 12700.

Capital gains are included at 50% for 2026. A home that was the principal residence every year is still reported on Schedule 3, and the CRA says Form T1255 must be completed to designate it, even if the entire gain is exempt. Rental property can also trigger recapture of capital cost allowance on Form T776.

There is one large exception. Property left to a surviving spouse or common-law partner who is resident in Canada, or to a qualifying testamentary spousal trust, rolls over at the deceased’s adjusted cost base, so no gain is reported until the survivor sells or dies. The property must vest in the spouse or trust within 36 months of death. The executor can elect out of the rollover on the final return, property by property, so that the gain is taxed at death and the spouse takes the property at fair market value.

RRSPs, RRIFs and TFSAs at death

An unmatured RRSP is usually the largest tax item. The CRA treats the deceased as having received the fair market value of the whole plan immediately before death; the amount appears in box 34 of a T4RSP issued in the deceased’s name and is taxed as ordinary income on the final return. If everything in the plan goes to a surviving spouse or common-law partner and is transferred directly to their RRSP, RRIF, PRPP, SPP or an eligible annuity before the end of the year after the death, no T4RSP is issued to the deceased and the spouse reports and deducts it instead. A rollover to the RDSP of a financially dependent child or grandchild with an impairment is also possible.

Growth in an RRSP between death and final payout is taxed to the beneficiary or estate, not the deceased. If the value falls before the final distribution, the executor can usually ask for the drop to be deducted on the final return, provided the payout happens by the end of the year after death.

A TFSA is different: the CRA says no income is reported on the final return for the value at death. Earnings after death are taxable to the beneficiaries. A spouse named as successor holder simply takes over the account; a spouse who receives the money as a beneficiary can contribute it to their own TFSA as an exempt contribution, designated on Form RC240, by December 31 of the year after the death, without using their own room, provided Form RC240 is filed within 30 days of the contribution. Quebec does not recognise successor-holder designations in a TFSA, nor designated beneficiaries for deposit TFSAs or arrangements in trust, so there the will usually governs.

Worked example: an Ontario estate in 2026

A widowed Ontario resident dies in 2026. She had $45,000 of pension income in the year, a non-registered ETF portfolio worth $350,000 with an adjusted cost base of $200,000, an RRSP of $300,000 naming her adult children, a $95,000 TFSA naming her daughter, a home worth $900,000 that was always her principal residence, and $30,000 in the bank.

On the final return the portfolio produces a $150,000 capital gain ($75,000 taxable), the RRSP adds $300,000 of income and the home is exempt. Total income is about $420,000. Our engine puts federal and Ontario income tax at about $180,158, compared with about $6,063 on the pension alone, and the top slice is taxed at 53.5%. The tax is paid out of the estate even though the RRSP itself goes straight to the children.

The Estate Administration Tax is charged on assets that pass through the estate. Ontario’s Ministry of Finance excludes RRSPs, RRIFs and TFSAs with a named beneficiary, so the estate is valued at $1,280,000 and the tax is $18,450 ($15 per $1,000 above $50,000). If the registered accounts had been left to the estate instead, the value would be $1,675,000 and the tax $24,375.

Final return deadlines and the clearance certificate

The executor (legal representative) files the final T1 return. According to the CRA it is due April 30 of the year after death if the person died between January 1 and October 31, or six months after the date of death if they died in November or December. If the deceased or their spouse carried on a business, the filing date becomes June 15, or six months after death for deaths from December 16 to 31. Optional returns, such as a return for rights or things, can take some income off the final return; the return for rights or things is due by the later of one year after death and 90 days after the final return’s assessment. Income the estate earns after death goes on a T3 trust return.

Before distributing everything, executors usually ask for a clearance certificate with Form TX19. The CRA says a representative who distributes assets without one is personally liable for unpaid tax, up to the value of what they distributed. Apply only after all returns are filed and assessed and the tax is paid; the CRA aims to acknowledge a request within 45 days, and the assessment can take up to 120 days if all the necessary documents were provided.

Common mistakes executors make

These errors come up again and again in estate returns:

• Paying out the RRSP beneficiaries and the residue before setting aside money for the RRSP tax, which is assessed on the final return.
• Forgetting to designate the principal residence on the final return (Form T1255), even when the full gain is exempt.
• Using the original purchase price instead of fair market value at death as the heirs’ cost when they later sell inherited shares or property.
• Treating a TFSA’s post-death growth as tax-free when there is no successor holder; only the value at the date of death escapes tax, and later earnings are taxable to the beneficiaries.
• Assuming minimum tax applies; the CRA says alternative minimum tax does not apply for the year of death.