Estate Taxation
Organizing your personal taxes can be an overwhelming and confusing process, let alone doing the final tax return for someone else’s estate. However, estate and inheritance tax don’t have to be complex. Tax on estates in Canada is the same in all provinces and territories but it will be different if the deceased owned any properties in other countries. Below, we have outlined the basics of estate and inheritance tax in Canada.
Basics of Estate Tax
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The deceased is considered to have sold all of their capital property (including non-registered assets) at fair market price.
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If the value of these assets have increased in value since their acquisition, the estate must pay capital gains on the asset.
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If there is a surviving spouse or common law partner, the assets may be transferred tax-free to their registered plan (RRSP or RRIF).
Estate & Inheritance Tax
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In Canada, beneficiaries don’t pay inheritance tax; instead, the estate pays the taxes owed to the government.
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If you have US assets, they may be subject to a state-based estate or inheritance tax and you may want to be aware of these states that do have estate or inheritance tax: States with Inheritance Tax
Duties of an Executor
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When a person dies, their executor has to file a deceased tax return (final return) to the CRA. Any taxes owed are taken from the estate prior to being settled.
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Once the executor has settled the estate, they must get a clearance certificate from the CRA to confirm that all taxes have been paid. This allows the legal representative to distribute the estate’s assets without being personally liable.