Inheritance Tax in Canada: There Isn't One, But Here's What Heirs Actually Pay

Canada does not have an inheritance tax. There is no tax on the person who receives an inheritance, regardless of the amount or the relationship between the deceased and the heir. There is also no federal estate tax (Canada repealed its estate tax in 1972). What exists instead is a deemed disposition on death: the deceased is treated as having sold all their capital property at fair market value immediately before death, and the resulting capital gains are reported on the deceased’s final (terminal) tax return. The estate pays the tax, not the heir. Separately, provinces charge probate fees (called “estate administration tax” in Ontario) on the value of assets that pass through the estate. The net effect is that the estate bears the tax burden, and the heir receives assets free of tax at their stepped-up fair market value.

Why do people think Canada has an inheritance tax?

The confusion comes from three sources. First, the US has a federal estate tax (with a $15 million exemption for 2026, made permanent by the One Big Beautiful Bill Act), and Canadians exposed to American media assume Canada has something similar. It does not. Second, the deemed disposition on death can produce a large tax bill that reduces what heirs receive, and from the heir’s perspective it feels like an inheritance tax even though technically the estate is the taxpayer. Third, provincial probate fees are sometimes described as “death taxes” in casual conversation, reinforcing the impression.

The distinction matters for planning. In the US, estate tax is a transfer tax on the right to pass wealth. It applies to the estate’s net value above the exemption, at rates up to 40%. In Canada, the tax is an income tax on the deemed gain, at the deceased’s marginal rate. The difference in mechanism means the planning strategies are entirely different. A Canadian does not need to worry about lifetime gift exclusions, generation-skipping transfer taxes, or portability elections. The planning focuses on managing the deemed disposition: spousal rollovers, the principal residence exemption, charitable donations, and trust structures.

What is the deemed disposition on death?

Under ITA 70(5), a taxpayer is deemed to have disposed of all capital property immediately before death for proceeds equal to fair market value, and to have reacquired it at that same value. This triggers any accrued capital gains that were unrealized during the taxpayer’s lifetime.

If a person bought shares for $50,000 that are worth $300,000 at death, the terminal return includes a $250,000 capital gain. At the current inclusion rate and the top marginal rate, the tax can be substantial. The estate pays this tax before distributing the remaining assets to the heirs.

The same deemed disposition applies to all capital property: real estate (other than the principal residence), investments, business assets, and personal-use property above $1,000. The principal residence exemption eliminates the gain on the deceased’s principal residence, which is the single largest tax-free transfer available on death.

Spousal rollover (ITA 70(6)). If the deceased leaves capital property to a spouse or common-law partner (or to a spousal trust), the deemed disposition is deferred. The property transfers at the deceased’s adjusted cost base, and no capital gain is triggered until the surviving spouse disposes of it or dies. This is automatic unless the executor elects otherwise on the terminal return. The rollover defers the tax; it does not eliminate it. The surviving spouse inherits the low cost base and will face the deemed disposition on their own death.

RRSP/RRIF on death. The full fair market value of an RRSP or RRIF at death is included in the deceased’s income for the year of death under ITA 146(8.8), unless the beneficiary is a spouse (rollover to the spouse’s RRSP/RRIF), a financially dependent child or grandchild (partial rollover options), or the estate makes a qualifying transfer. A $500,000 RRIF with no designated beneficiary or spousal rollover adds $500,000 to the deceased’s income in the year of death, potentially pushing the terminal return into the highest bracket on the entire amount.

What are probate fees by province?

Probate fees (or estate administration tax) are charged by the province when the estate requires a certificate of appointment of estate trustee (a “grant of probate”). The fees vary enormously by province:

Ontario: $5 per $1,000 of estate value on the first $50,000, plus $15 per $1,000 above $50,000. Effective rate is 1.5% on assets above $50,000. A $1 million estate pays approximately $14,500. Ontario’s fees are among the highest in Canada.

British Columbia: $0 on the first $25,000, $6 per $1,000 from $25,000 to $50,000, and $14 per $1,000 above $50,000. Effective rate is approximately 1.4% on larger estates. A $1 million estate pays approximately $13,450.

Alberta: $35 for estates up to $10,000, scaling to $525 maximum for estates over $250,000. Alberta’s probate fees are negligible by national standards.

Quebec: $0. Quebec does not charge probate fees for notarial wills (the most common form). Wills made before witnesses require court verification at a nominal court filing fee.

Other provinces: Saskatchewan, Manitoba, Nova Scotia, and New Brunswick charge rates between 0.7% and 1.5%. Prince Edward Island and Newfoundland are in the same range.

Assets that bypass probate do not attract probate fees. Joint tenancy with right of survivorship passes outside the estate by operation of law. Designated beneficiaries on RRSPs, RRIFs, TFSAs, and life insurance policies pass directly to the named beneficiary. Assets held in a family trust are not part of the deceased’s estate. These are the primary probate-avoidance mechanisms.

How is this different from the US estate tax?

The US imposes a separate transfer tax on estates above the exemption amount. For 2026, the exemption is $15 million per person ($30 million for a married couple with portability). Estates above the exemption pay tax at 40% on the excess. The tax is on the value of the estate, not on the income or gains within it.

Canada has nothing equivalent. There is no exemption amount to plan around, no transfer tax rate, and no portability election. The Canadian mechanism is an income tax on accrued gains, triggered by the fiction that the deceased sold everything immediately before death. The rate is the deceased’s marginal income tax rate, not a flat 40%.

For US citizens who die while living in Canada, both systems can apply simultaneously: Canada taxes the deemed disposition on the terminal return, and the US imposes estate tax if the worldwide estate exceeds the exemption (or the much lower $60,000 exemption for non-citizen non-residents with US-situs assets, subject to treaty relief). The US estate tax for Canadians guide covers the treaty mechanism that provides proportional relief.

What can reduce the tax on death?

Principal residence exemption. The gain on a qualifying principal residence is fully exempt from tax, both during life and on the deemed disposition at death. For many Canadians, the home is the largest asset, and the PRE eliminates the largest potential gain.

Spousal rollover. Leaving property to a spouse defers the deemed disposition until the second death. This does not reduce the total tax, but it delays it and preserves liquidity for the surviving spouse.

Charitable donations on death. Donations made by will (or deemed donations of certain property like publicly listed securities or ecological property) generate a donation tax credit on the terminal return with no cap (the 75%-of-income limit does not apply in the year of death and the preceding year). A large charitable bequest can offset the tax on the deemed disposition.

Life insurance. A life insurance policy with a designated beneficiary pays out tax-free to the beneficiary, bypasses probate, and provides liquidity to pay the estate’s tax bill without forcing asset sales.

Trust planning. Assets already transferred to a family trust during the taxpayer’s lifetime are not part of the deceased’s estate and do not trigger a deemed disposition on the taxpayer’s death (though they face the trust’s own 21-year deemed disposition cycle).

RRSP/RRIF beneficiary designations. Naming a spouse as the designated beneficiary allows a tax-free rollover to the spouse’s registered account. Naming a financially dependent minor child or grandchild allows a partial deferral. Without a designation, the full RRSP/RRIF value is income on the terminal return.

• Family trusts in Canada, the trust structure used for estate planning and probate avoidance
• Gift tax in Canada: are gifts taxable?, the deemed disposition rules on lifetime transfers
• Cross-border estate planning: freezes, alter ego, and bypass trusts, advanced planning for cross-border families
• US estate tax exemption for Canadians, the treaty-based relief for Canadians with US assets
• US-Canada departure tax, the related deemed disposition on leaving Canada

This guide is general information, not tax advice for your specific situation. Which points apply, and how, depends on your facts.