No Inheritance Tax for Canadians. Simple, right? Not exactly

Nearly 1 in 3 Canadians say it's too morbid to think about inheritance tax issues - with significant gap in understanding related tax realities, reveals H&R Block Canada study

CALGARY, AB, March 18, 2025 /CNW/ - The Great Wealth Transfer is a term coined to describe the wealth that the silent generation and baby boomers will be leaving their loved ones after they pass on. It's expected to be the largest intergenerational transition of wealth in Canada's history. Yet, planning ahead to explore ways to minimize any tax burden relating to inheritance isn't a popular topic of conversion among Canadian families who instead tend to take a rather passive approach, reveals a new study commissioned by H&R Block Canada. The study highlights a prevailing lack of understanding on tax related considerations when it comes to inheritance matters, and a reluctance to proactively explore ways to minimize any tax burdens with loved ones.

"Money received from an inheritance is not considered taxable income by the Canadian Revenue Agency (CRA). This means that Canadian beneficiaries don't have to pay taxes on that money or report it as income on your tax return. But that doesn't mean that inherited assets are tax exempt," said Yanick Lemay, Tax Expert at H&R Block Canada. "When an individual dies, the CRA treats the deceased's assets - such as real estate, investments, and registered savings plans - as if they were sold at fair market value at the time of death. This means that the deceased's 'estate' pays any taxes owed to the government."

H&R Block Canada points to the key highlights from the study that gages Canadians' sentiment and understanding around inheritance related considerations, and provides key considerations and tips to minimize the tax impact of inherited assets and finances.

Key H&R Block Canada study findings. 

While 59% of Canadians anticipate they may be a beneficiary of inheritance, only (33%) have a good understanding of tax related considerations: While older Canadians report having a better understanding than younger Canadians, there's still an overall lack of understanding. Less than half of those aged 55 plus (42%) report having a good understanding of tax related inheritance considerations, compared to 29% among 35–54-year-olds, and just 25% among those aged 18-34.

Inheritance related discussions are a taboo subject among majority of Canadian families: More than half of Canadians (53%) report that inheritance isn't something they've discussed with relevant family members or loved ones from whom they may inherit money or assets down the road. A further 52% haven't yet looked into inheritance related matters that might be relevant to them. Nearly one in three Canadians (31%) feel it's morbid to focus on understanding inheritance tax related considerations prior to being in a situation where they receive any funds or assets.

Wait and see mindset to inheritance versus proactively seeking ways to minimize tax implications: More than half of Canadians (54%) of Canadians say they're not sure that their family or loved ones have explored how best to minimize any tax liability they might have with any inheritance. Only 37% feel confident they understand the tax implications that would apply to them in the event they were to inherit any assets, with a lack of understanding around ways to mitigate tax implications. For example, only 33% have a good understanding around the tax impact of receiving gifted funds or assets 'prior' to the death of a loved one - versus 'after' they pass on, which can have differing tax implications.  

"Talking about inheritance related matters is a sensitive topic. But it's important to understand and forward plan around tax friendly ways to pass money and assets on to loved ones," said Lemay. "For example, there are significant tax exemptions for spouses or common law partners, gifting prior to death, leveraging tax free life insurance, maxing out Tax Free Savings Accounts (TFSAs), and setting up trusts."

H&R Block points to key considerations and tips to help minimize inheritance related taxes for both the deceased and the beneficiary.  

Where inheritance related taxes can apply.

Capital Gains Tax: Upon death, the CRA treats most assets as if they've been sold at their fair market value.  If any assets have increased in value since their acquisition, the deceased will owe taxes on the capital gain in the year of death, unless the beneficiary is a surviving spouse or common law partner. Capital gains tax often applies to investment properties, stocks, registered savings plans, and business assets. For example, if the deceased purchased a cottage for $300,000 and its value at the time of death is $400,000, 50% of the $100,000 capital gain may be subject to capital gains tax.

Registered Accounts Tax: Registered accounts such as Registered Retirement Savings Plans (RRSPs) and Registered Retirement Income Funds (RRIFs) are taxable as income in the year of death, unless transferred to a spouse, common-law partner, or a financially dependent child or grandchild. This means the full value of the registered plan is included in the deceased's income for the year of death, potentially resulting in significant income tax liabilities. For example, if the deceased had saved $100,000 over their lifetime into their RRSP, the full amount would be recognized as income of $100,000 in the year they died, and the applicable income tax would be incurred.

Provincial Estate Administration Taxes: Some provinces levy estate administration taxes (also known as probate fees) based on the value of the deceased's estate. For example, in Ontario, the estate administration tax is approximately 1.5% of the estate's value above $50,000. If the estate was worth $500,000, this would equate to $6,750 owed in related taxes. Some assets will not form part of your estate upon death if you had previously named a beneficiary, such as life insurance policies and RRSP accounts. Each province has a different system and way to calculate probate fees, except Manitoba and Quebec, which don't have probate fees.

Inheritance tax rules from the country of origin must be considered: Canada proudly celebrates having one of the most diverse populations in the world with approximately one in five Canadians born in another country. As such, it's common for Canadians to inherit assets from loved ones that resided in another country. This means that not only Canadian tax rules must be considered, but also the tax laws in the country that the inheritance originates from.

Exceptions and ways to minimize taxes on inheritance. 

Principal residence:  The primary home that the deceased lived in is exempt from capital gains tax upon the owner's death. However, if the property was used at any time to generate rental income (including holiday rentals or a portion of the property was rented out), or if it was not the deceased primary residence throughout the entire period of ownership, a partial tax may apply.     

Tax-Free Savings Account (TFSA): The growth and withdrawals from a TFSA remain tax-free for beneficiaries if the account is left to a spouse or common-law partner. If left to another beneficiary, the TFSA ceases upon death, but the investment gains are passed on tax-free.

Life Insurance Proceeds: Life insurance payouts are tax-free for beneficiaries and the deceased, though some exceptions apply if the beneficiary is a corporation and not an individual. Many Canadians use life insurance to cover capital gains tax on assets like cottages, businesses, and investments, preventing heirs from needing to sell assets to pay taxes.

Cash, personal belongings, and certain non-registered investments: Inherited cash or monies in the deceased bank account, vehicles, jewelry, and personal effects are exempt from tax liabilities for the recipient.

Gifting money before death: Gifting money or assets before death is generally tax-free in Canada, although it can depend on the type of asset being gifted. Because of the complexity of the rules involved, it's recommended to check with a Tax Expert before making these types of decisions.

Gifting real estate, stocks, or other investments before death: The CRA usually treats these assets as if the giver sold the assets at the fair market value, triggering capital gains tax if the asset has appreciated in value. The recipient inherits the asset at the current market value and will owe tax only when they sell it in the future. However, a primary home can be gifted without capital gains tax if it qualifies for the principal residence exemption.

Joint Ownership with Right of Survivorship: By adding a family member such as a spouse or an adult child as a joint owner on assets such as bank accounts, real estate, or investments, it allows these assets to bypass probate taxes and transfer directly to the surviving joint owners.

Living Trust (Alter Ego or Joint Partner Trust): A trust is a legal entity that holds assets on behalf of beneficiaries; Alter Ego Trusts (for individuals 65+) and Joint Partner Trusts (for couples 65+) allow Canadians to transfer assets into a trust while retaining control during their lifetime. When the owner dies, the assets pass directly to beneficiaries, avoiding probate and reducing taxes.

About the survey

These findings are from a survey conducted by H&R Block from February 12-13, 2025, among a representative sample of 1,790 Canadians. The survey was conducted in English and French. For comparison purposes only, a probability sample of this size would carry a margin of error of +/-2.53 percentage points, 19 times out of 20.

About H&R Block Canada
A trusted partner of Canadians for over 60 years, H&R Block Canada is Canada's tax leader. Serving almost 1,000 locations across Canada, H&R Block's team of Tax Experts use the latest in technological advances combined with real-world expertise to help people file taxes in office, through drop off service, upload their documents remotely, or use do-it-yourself Tax Software. H&R Block Canada can support in the preparation of personal, small business, corporate, U.S., rental, and estate taxes. H&R Block's comprehensive education program, Tax Academy, trains new experts and ensures our Tax Experts continually update their skills. Learn more at www.hrblock.ca or 1-800-HRBLOCK.

SOURCE H&R Block Canada Inc.

For more information, contact: Katie Duffy, H&R Block c/o Ketchum, [email protected], 647-772-0969