Canada does not have a formal estate or inheritance tax, but death triggers significant tax events that can erode the wealth passed to your heirs. Understanding how Canadian tax law treats assets at death — and how to plan around it — is one of the most important aspects of financial planning for Canadians.
When a Canadian resident dies, the CRA treats the deceased as having sold all capital property at fair market value at the moment of death. This "deemed disposition" triggers capital gains tax on any unrealized gains in investment accounts, rental properties, and other capital assets.
The tax owing on the deemed disposition is payable on the deceased's final tax return, often called the terminal return. This tax is owed by the estate before any assets are distributed to beneficiaries. In large estates with significant investment gains, this terminal tax can be substantial.
Property transferred to a surviving spouse or common-law partner at death can roll over tax-free under the spousal rollover rule. The assets transfer at the deceased's original adjusted cost base (ACB) rather than fair market value, deferring capital gains tax until the surviving spouse eventually sells the asset or dies. This is one of the most valuable estate planning tools available to married Canadians.
The full value of an RRSP or RRIF at death is included in the deceased's income on the terminal return and taxed at their marginal rate — unless the assets are transferred to a qualifying beneficiary:
If no qualifying beneficiary is named, the full RRSP/RRIF is included as income. For large RRSPs, this can generate a tax bill at the highest marginal rate — making it the largest potential tax liability in many estates.
If your spouse is named as a "successor holder," they inherit your TFSA and its tax-free status. The TFSA continues as their own account without affecting their contribution room.
If no successor holder is named, the fair market value of the TFSA at the date of death passes tax-free to the estate or beneficiary. Any growth in the TFSA after the date of death is taxable to the recipient.
If the deceased's principal residence is transferred to a spouse, it qualifies for the spousal rollover — no immediate tax. If left to adult children, the principal residence exemption may shelter the full gain if the property qualified as a principal residence for all years of ownership.
Probate fees (estate administration taxes) are charged by provinces on assets that pass through the estate — typically 0.5% to 1.5% of the estate value. Assets that bypass probate (jointly-owned property with right of survivorship, registered beneficiary designations on RRSPs/TFSAs/life insurance) avoid probate fees.
Ontario has among the highest probate fees in Canada at 1.5% on the portion of the estate over $50,000.
KOHO offers free banking with no monthly fees. Use code 45ET55JSYA for a bonus when you sign up.
Open KOHO Free — No Fees — Code 45ET55JSYA