December 24, 2025

Is There A Death Tax In Canada?

A Death Tax In Canada

The one thing that becomes a matter of concern for a lot of Canadians is: What will happen to my taxes after I pass away? You might have heard about the term ‘death tax’. Not many people know the details about it, which leads to a lot of confusion.

Let us make this clear: Canada does not have any separate death tax or an inheritance tax. However, this also does not mean that there aren’t any tax obligations at death.

Find out all about the different taxes and how a family can plan these taxes in case of a death in Canada.

Canada Has No Death Tax Or Inheritance Tax

Canada does not charge any special tax when a person dies. There is –

  • No death tax
  • No inheritance tax
  • No tax is applied directly to the beneficiaries when they receive the deceased’s assets

However, the deceased person’s estate (if the person has any) may still owe taxes. This can be done through the final tax return and other relevant filings.

To know more about these filings, you can get in touch with a professional tax accountant, and who better than Taxccount Canada.

No Death Tax, But There Are Tax Rules

Dealing with death is an emotional and overwhelming experience. And the last thing you want is to get hassled by the cumbersome tax processes.

Canada does not have any specific tax when a person dies. There is also no inheritance tax on the person who receives the assets after the person’s death. However, the Canada Revenue Agency treats death as a deemed disposition of all the assets at their fair market value. Simply put, you need to report the capital gains, income, and other benefits.

So, What Is A Deemed Disposition?

It is assumed by the CRA that at the time of death, the deceased sold all his/ her assets at fair market value. These include –

  • Real estate
  • Investments
  • Capital property
  • Specific business assets

If the value of all these has increased, capital gains would apply.

We understand that it can be a task to estimate the true value of all of these. That’s the reason the professional team at Taxccount Canada is there to guide you. We’ll help you run projections of not just your estate, but also of your loved one.

You can read more about the rules on final returns here – https://www.canada.ca/en/revenue-agency/services/tax/individuals/life-events/what-when-someone-dies/prepare-returns.html

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What Should Be Reported Under The Final Tax Return?

The executor (or your legal representative) must file a ‘Final Return’. It includes the income earned from January 1st to the date of death. The income that’s included may have –

  • Employment income
  • Pension income
  • Capital gains
  • Investment income
  • RRSP/ RRIF withdrawals at death

In addition to these, there are also Optional Returns, like Return for Rights or Things that can effectively help reduce your overall tax.

Optional Returns Help Reduce Tax

As per the CRA guidelines, it allows executors to file additional returns that can help –

  • Split your income
  • Increase tax credits
  • Lower the overall tax payable
  • Reduce the estate’s final liability

For a lot of families, these optional returns help in efficient tax saving.

What About RRSPs And RRIFs?

Both RRSPs and RRIFs are taxable as income in the year of death of the person. However, it can be deferred when –

  • The assets are transferred to a spouse or common-law partner
  • Assets are transferred to financially dependent children or grandchildren (in some specific cases)
  • For personalized RRSP and RRIF strategies as part of your estate planning, get in touch with us. The highly experienced team at Taxccount Canada is there to guide you at every step and make your tax planning journey simple.

Capital Gains On Property

In case the property increases in value, capital gains are applicable at the time of death. However, there are some exemptions –

  • Principal residence exemption: eliminates gains on a family home
  • Spousal rollover: defers gains when assets are transferred to a surviving spouse

Do Beneficiaries Pay Tax On What They Receive?

Usually, beneficiaries do not pay tax on the assets that they inherit –

  • Cash
  • Property
  • Investments
  • Personal belongings

Tax is handled by the estate before these assets are distributed. The only exception to this is when beneficiaries receive income-earning assets later, like a rental home or specific investment income. For these, the beneficiaries have to pay tax on future earnings and not the inheritance itself.

Tips For Executors

Executors must follow these CRA steps carefully –

  • File the Final Return
  • File any Optional Returns
  • Report all income
  • Pay all outstanding taxes
  • Obtain a Clearance Certificate from the CRA

Without the clearance certificate, the executor or legal representative may become personally liable for any future tax reassessment.

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This is general information only and not professional advice. Consult a professional before acting.