SRJ Chartered Accountants
By Shayan Rashid, December 20th, 2024
Navigating the rules around inheritance tax in Canada and cross-border tax implications can be complex, especially for Canadians with international ties or property abroad.
One of the most common questions Canadians have is whether inheritance is taxable in Canada. Canada does not have a formal inheritance tax; rather, it applies what is known as “deemed disposition” on the estate of a deceased person. This means that, for tax purposes, the estate is considered to have disposed of all its assets at fair market value upon death, and any resulting capital gains are taxed.
For Canadian residents inheriting from Canadian estates, this deemed disposition means that taxes are paid by the estate before the assets are passed on to heirs. The beneficiaries typically receive the inheritance tax-free. However, there may be tax implications when inheriting property or other assets from another country, which is why it’s essential to understand both Canadian and foreign inheritance tax rules.
While Canada does not impose a direct inheritance tax, certain tax obligations and reporting requirements still apply when inheriting assets from another country. This article will clarify the intricacies of inheritance tax in Canada, the role of deemed disposition, and what Canadians need to know about foreign inheritance.
For Canadians inheriting from overseas, foreign inheritance tax in Canada can introduce additional layers of complexity. Some countries, like the United States, impose estate taxes on their citizens’ assets, even if these assets are inherited by foreign residents. Canada and the U.S. do not have a tax treaty addressing estate taxes, so Canadian beneficiaries may be subject to U.S. estate tax if inheriting from a U.S. resident.
Shayan Rashid, CPA | International Tax
The tax treatment will depend on the country where the inheritance originates. Some countries may also impose an inheritance tax, which is often payable before the assets are transferred to the Canadian heir.
