Inheritance Tax in Canada: Who Pays, How to Prepare

Canada does not have an inheritance tax. So, if you receive an inheritance, you aren’t taxed on what you receive.

But taxes do come into play when a person dies; they’re just paid before any inheritances are passed out.

Taxes after death

When a person dies, the Canada Revenue Agency (CRA) treats their capital assets as if they were sold at a fair market value on that day — a process referred to as a “deemed disposition.”

If a person bought a stock for $75, and it was worth $100 on the day they died, there’s a profit of $25. Canada’s capital gains tax applies to half of profits, so $12.50 would be subject to taxes. The tax due depends on their marginal tax rate.

There are exceptions. Primary homes are often exempt from taxes when inherited or gifted. And taxes on registered accounts may be deferred in some instances. For example, a tax-free savings account may be exempt from taxes if there’s a designated beneficiary on the account, and a registered retirement savings plan may avoid taxes if the account passes to a spouse.

Inheritance timeline

After a person dies, the executor of their estate ensures that any taxes the estate owes are paid, using funds from the estate.

Executors often wait to distribute inheritances until after the CRA issues a clearance certificate confirming that all taxes have been paid. This process can take a while. Even simple estates can take up to a year to settle.

Minimizing taxes

To reiterate: Canada doesn’t have an inheritance tax. But estates do face capital gains taxes before handing out inheritances.

You can maximize the amount that gets passed on by minimizing the capital gains taxes the estate owes.

To do this, you’ll need to put plans in motion before you pass. After death, there are fewer options available. Some examples:

What to do if you get an inheritance

Receiving a large amount of money can be a disorienting experience. Take time to make a plan that will benefit you in the long run. Depending on your situation, you might want to:

Pad your emergency fund. Three to six months of living expenses is a commonly recommended amount to have on hand. Set it aside in a high-interest savings account or a Tax-Free Savings Account (TFSA) instead of your daily checking account. You’ll earn a much better interest rate, and you’ll be less likely to use it for non-emergency reasons.

Buy a home. About two in five first-time home buyers used inheritance or gift money in their down payment, according to the CMHC Mortgage Consumer Survey from May 2025.

Pay off debt. Getting out of debt can get rid of stress and increase your cash flow. Shedding those monthly payments is doubly helpful if you’re hoping to buy a home. Lenders use debt ratios to calculate how much of your paycheck is earmarked for debt payments.