Does Ontario Have an Estate Tax or Inheritance Tax?

If you have heard about estate taxes or inheritance taxes in other countries, it is natural to ask whether Ontario or Canada has one. People usually mean a tax on the size of an estate, or a tax paid by the person who receives a gift from someone who died.

The tax picture here is built differently. Tax shows up in a few specific places: the deceased's final income tax return, registered plans such as RRSPs and RRIFs, and the fee Ontario charges when an estate certificate is issued. This article walks through each so you know what to expect.

Where tax actually arises after a death

Rather than a single tax with the label "estate tax" or "inheritance tax", three separate things tend to matter in Ontario.

• Income tax on property gains, because the deceased is treated as having disposed of their capital property just before death.
• Income tax on registered plans, because an unmatured RRSP is treated as received by the deceased and included in income on the final return.
• Ontario's Estate Administration Tax, charged on the value of the estate when an estate certificate is applied for.

Each has its own rules and its own exceptions, so it helps to take them one at a time.

Deemed disposition: tax on gains at death

CRA treats a deceased person as having sold all their property just before death, even if nothing was actually sold. The deemed sale price is the property's fair market value at that time, and the person who acquires the property generally takes that fair market value as their cost.

Capital property includes real estate such as homes and cottages, investments such as stocks, mutual funds and crypto-assets, and personal belongings such as art, collections and jewellery. Only the taxable portion of a capital gain is included in income, and the capital gains inclusion rate is one-half.

Several exceptions can change the result:

• Property passing to a surviving spouse, common-law partner or qualifying spousal trust rolls over at the deceased's adjusted cost base instead of fair market value, if it vests indefeasibly in the recipient within 36 months after death, a period the Minister can extend.
• The legal representative can elect, one property at a time, not to use that spousal rollover.
• Qualified farm or fishing property transferred to a child is treated under a separate exception.
• The principal residence can shelter the gain, but it must still be designated on the final return using Schedule 3 and Form T1255.

RRSPs, RRIFs and TFSAs

For an unmatured RRSP, the full fair market value of the plan is included in income on the final return and shown in box 34 of the T4RSP. If all the property goes directly to the survivor's RRSP, RRIF, PRPP, SPP or an eligible annuity before the end of the year after the death, no T4RSP is issued in the deceased's name. A surviving spouse or common-law partner can also continue as the new annuitant of a RRIF, in which case the full RRIF value is not taxed on the final return.

A TFSA works differently. The holder is considered to have received its value immediately before death, but no TFSA income is reported on the final return, and earnings after death are taxable to the beneficiaries in the year they receive them. A surviving spouse or common-law partner named as successor holder takes over the TFSA, and growth after death stays sheltered.

Probate and the Estate Administration Tax

In Ontario, the tax tied to probate is the Estate Administration Tax. It is paid as a deposit with the application to the Superior Court of Justice and becomes the tax when the estate certificate is issued. The estate pays it, not the estate representative.

For certificates applied for on or after January 1, 2020, there is no tax on estates worth $50,000 or less, and $15 for each $1,000 or part of $1,000 over $50,000, with the value rounded up to the nearest thousand. A $240,000 estate, for example, pays $2,850.

Some assets are left out of the estate value, including jointly owned assets that pass automatically to the surviving owner, real estate outside Ontario, CPP death benefits, and RPPs, RRSPs, RRIFs or TFSAs with a beneficiary designation. Mortgages on included Ontario real estate can be deducted, but funeral expenses, lawyer fees and credit card debt cannot. An Estate Information Return must be filed with the Ministry of Finance within 180 calendar days after the certificate is issued, even if the estate's value is $0.

What to do next

Because the tax outcome depends on what the person owned and who receives it, a short inventory is the best starting point. The legal representative is responsible for dealing with CRA and for making sure taxes are paid before property is distributed.

• List every asset, who is named as beneficiary, and whether any asset is jointly owned.
• Note which assets are registered plans, a home, a cottage or investments with large gains.
• Find out whether a surviving spouse or common-law partner is receiving property.
• Do not distribute property before checking whether a CRA clearance certificate is needed.
• Speak with a lawyer or accountant before relying on any exception.

Frequently asked questions