Updated: April 2025  |  bremo.io financial guides

Inheritance in Canada — How It Works

Canada does not have an inheritance tax — meaning you do not pay tax simply because you received an inheritance. But the process of inheriting money or property involves understanding how estates work, what legal rights beneficiaries have, what the timeline typically looks like, and what the tax implications might be for certain types of inherited assets.

Is Inheritance Taxable in Canada?

No — you do not pay income tax on money or property you inherit in Canada. There is no inheritance tax or estate tax that applies to beneficiaries. The tax, if any, is paid by the estate of the deceased person, not by the people who inherit.

However, there are some situations where income tax does apply to inherited assets:

• RRSP/RRIF inheritance: If you inherit an RRSP or RRIF as a non-spouse beneficiary (and are not a qualifying dependant), the fair market value of the account is included as income on the deceased's terminal return. You receive the proceeds, but the estate bears the tax.
• Income earned after death: Income earned on inherited assets after the date of death (interest, dividends, rental income) is taxable to you in the year received.
• Capital gains on eventual sale: If you inherit property (not registered accounts) and later sell it, any capital gain from the value at the time you inherited it to the sale price is taxable to you.

How the Inheritance Process Works

Step 1: The Estate Is Administered

After someone dies, their executor (or administrator if there is no will) takes charge. They identify all assets, apply for probate if necessary, pay all debts and taxes, and then distribute the remaining estate to beneficiaries. This process typically takes six months to two years depending on the estate's complexity.

Step 2: Beneficiaries Are Notified

As a beneficiary named in a will, you have the right to be notified that you are named. The executor must provide you with information about your entitlement. If you are receiving a specific bequest (a named amount or specific property), you will learn the details during this notification.

Step 3: Assets Are Distributed

Once the executor has paid all debts, taxes, and expenses, they distribute the remaining estate according to the will. For larger or more complex estates, this may happen in stages — an initial partial distribution followed by a final distribution once all taxes and expenses are confirmed.

Receiving Registered Account Proceeds

If you are named as beneficiary on an RRSP, RRIF, or TFSA, you receive those proceeds directly from the financial institution — separately from the estate and without waiting for probate. Simply present a death certificate and complete the institution's claim form. These payments typically occur within a few weeks of the death.

Receiving Life Insurance Proceeds

Life insurance proceeds as a named beneficiary are also paid directly by the insurance company, not through the estate. They are received tax-free. File a claim with the insurer, provide the death certificate and policy number, and the insurer processes the payment directly to you.

Rights of Beneficiaries

As a beneficiary of an estate, you have specific legal rights:

• The right to be informed that you are named in the will
• The right to receive a copy of the will in most provinces
• The right to receive an accounting of the estate's administration
• The right to have the estate administered in a timely and appropriate manner
• The right to challenge the executor's conduct if they are not fulfilling their duties

What If the Estate Has Debts?

You do not inherit the deceased's personal debts. Debts are obligations of the estate — they are paid from estate assets before anything is distributed to beneficiaries. If the estate is insolvent (debts exceed assets), beneficiaries simply receive nothing. You cannot be pursued by creditors of the deceased for their personal debts.

Exception: if you co-signed a loan or were jointly responsible for a debt, you remain liable for your own obligation regardless of the deceased's estate.

Disclaiming an Inheritance

You can refuse (disclaim) an inheritance. This might make sense if accepting the inheritance would create tax problems for you, if the estate has hidden liabilities you don't want to deal with, or if you want to redirect the inheritance to other beneficiaries. A disclaimer must typically be filed within a specified period and before you have taken any steps to accept the inheritance. Once disclaimed, the asset passes as if you had predeceased the deceased (following the will's alternate provisions or intestacy rules).

Inheritance and Government Benefits

If you receive social assistance, disability benefits, or means-tested government programs, a large inheritance can affect your eligibility. This is a particular concern for people receiving ODSP (Ontario Disability Support Program) or similar provincial benefits. Strategies like an RDSP (Registered Disability Savings Plan) or a Henson Trust (a discretionary trust) can allow disabled beneficiaries to inherit without losing benefit eligibility.