Do You Pay Tax on an Inheritance in Saskatchewan? What Applies

If you have just learned you will receive money, a home or farmland from someone who has died, it is natural to wonder whether a tax bill will follow you. For most beneficiaries, the more important tax happens before you receive anything.

This article explains what tax the deceased's estate may owe, how that affects what reaches you, and when registered accounts and property can cause tax. Your own facts, and an accountant, will decide the details.

This article covers the law of Saskatchewan.

Not an inheritance tax

On death, the person is considered to have sold all property just before death at fair market value, and any capital gain or loss is reported on Schedule 3 of the final return. This is a federal income tax, not an inheritance tax.

In practice that means the estate, not you, deals with tax on those gains. The probate levy is a separate matter: it is a court fee on the estate of $7.00 per $1,000 of Total Part 1 Assets, plus a $200 Local Registrar fee.

The probate fee is paid at the court house when applying. Assets passing outside the estate, such as joint survivorship property, named-beneficiary insurance and RRSPs or RRIFs, are excluded. As an example of the arithmetic, a Part 1 estate of $500,000 (for instance house equity plus accounts held solely in the deceased's name) produces a levy of $3,500 at $7 per $1,000, plus the $200 Local Registrar fee. The court's guidance says that for real estate only the equity counts, while the levy is described as applying to Total Part 1 Assets on the Statement of Property, so how real estate is stated in your figure is worth confirming with the court or a lawyer.

The final return and estate returns

A graduated rate estate can choose any year-end up to one year after death.

Property, homes and registered accounts

• Property passed to a surviving Canadian-resident spouse or common-law partner (vested within 36 months) may not result in a gain or loss on the final return, and the legal representative can elect out.
• Gains on a principal residence may be wholly or partly exempt, but it must be designated using Schedule 3 and Form T1255.
• The fair market value of an unmatured RRSP at death is included in the deceased's income on the final return, and a RRIF is reported on line 13000.
• If an RRSP is transferred to the spouse's RRSP by the end of the year after death, the amount is not included in the deceased's final return.

An RRSP with a named beneficiary passes outside probate, but it can still affect the deceased's final return, so the tax and the ownership questions are separate.

Land held in joint tenancy with survivorship, bank accounts with survivorship and life insurance with a named beneficiary also pass outside probate. How tax applies to each of them depends on the facts, so it is worth confirming with an accountant or lawyer.

Why the clearance certificate matters to you

If a legal representative distributes assets before getting a CRA clearance certificate and tax is still owing, they can be held personally liable up to the value of the assets distributed. The certificate (Form TX19) is requested after returns are filed, assessments received and tax paid, and assessment can take up to 120 days.

Final distribution cannot occur until the clearance certificate is received, and the average estate takes about a year. Debts of the deceased are paid from the estate before any gifts in the will go to beneficiaries. If an estate is insolvent, certain Income Tax Act debts have legislative priority in the order of payment.

The executor has other steps to complete along the way. The province lists publishing a Notice to Creditors, filing returns, obtaining a CRA Final Clearance Certificate, paying debts by priority and accounting to beneficiaries within two years among the common duties. The Notice to Creditors (Form 16-48) is published once a week for two consecutive weeks in a newspaper nearest the deceased's last residence.

What to do next

• Ask the executor which assets you are receiving and when to expect them.
• Ask whether the final return and estate return have been filed.
• If you inherit land, ask whether the principal residence designation or spousal rollover was used.
• If you are the executor, speak to an accountant before distributing anything.
• Keep records of the values and dates for anything you receive, in case you later sell it.

Frequently asked questions