Canada does not have an estate inheritance death tax. The estate is considered a sale by the CRA which means that it’s the estate that owes taxes to the government and not the beneficiaries of the estate. In simpler words, the beneficiary of the estate will have inherited assets at the fair market value. The fair market value becomes the cost of the assets for the capital gain and tax purposes for the beneficiary.
Under the deemed disposition rules, the estate’s liquidator files a final tax return in the year of death. The final tax return includes deemed disposition of all the assets with some exceptions the deceased owned including income till the date of the death. Further, the capital property owned by the deceased is considered as it was sold right away before the date of the death (deemed disposition). Thus, any unrecognized gain or loss is realized by forcing a deemed sale of the assets which is then reported in the final tax return of the deceased.
Canada Estate Inheritance Death Tax, Non Exclusive list of assets subject to deemed disposition
- Primary Home
- All registered accounts, including LIRA, RRIF and RRSP
- Any secondary home or vacation home
- Investments that aren’t registered including stocks
Exemptions from Canada Estate Inheritance Death Tax
- Lifetime capital gains are exempted
- Principal residence gains are exempted
- RRSP or RRIF for anyone whether it’s a surviving spouse or a mentally or physically abled child.
Canadian Provincial Probate Taxes
In addition to the income tax, a probate fee is charged depending on the province. This fee varies from province to province. It’s basically based on the total assets of the estate. Any assets with named beneficiaries bypass the probate fee. The direct beneficiary designated assets and the joint assets aren’t a part of probate. Because then the surviving joint owner is considered the final owner of the assets.
Within the provincial court, the executor of your estate has to file for probate. The person is responsible for submitting everything to the court including the Will and the entire inventory of the person who just died. When the documents are accepted by the court, a “Certificate of appointment of estate trustee with a Will” is issued. This document is basically a verification that the submitted Will is authentic and valid.
U.S. Estate Tax Consideration
The US government will also subject you to a tax bill along with the taxes that you have to pay in Canada. If you are a Canadian who owns some US sourced assets including, corporate stocks, bonds, government debt, you will have to pay a US estate tax as per the US market value. It’s something extremely important for those who invest in the US corporation securities including Microsoft and IBM in their Canadian based brokerage account. All of this can lead to a U.S. Estate Tax liability for the estate they own.
The US-Canada Tax treaty has reduced a lot of individual tax burdens especially the ones subjected to estate tax. However, individuals with a significant net worth will still have to go through a lot of estate tax burden.
Have questions about the Canadian estate inheritance death tax? Then contact us before the IRS contacts you!
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