Is There an Estate Tax or Inheritance Tax in Saskatchewan?

Many people expect a tax bill to land on a beneficiary when they receive an inheritance. The more useful question is what taxes arise because someone has died, and who is responsible for them.

In practice, the tax that matters is income tax on the deceased's final return and on income the estate earns afterward. This article explains those pieces and the deadlines that go with them.

This article covers the law of Saskatchewan.

Income tax, not inheritance tax

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

That distinction matters. The tax is calculated on the deceased person's final return. Filing returns and obtaining a CRA Final Clearance Certificate are among the executor's common duties, so it is worth dealing with tax before the estate is distributed.

Court costs are a separate matter from income tax. On a standard probate application, the fees are a Local Registrar fee of $200 plus a levy of $7.00 per $1,000 (or portion thereof) of Total Part 1 Assets on the Statement of Property. For example, a Part 1 estate of $500,000 produces a levy of $3,500, plus the $200 fee. Assets that pass outside the estate, such as joint survivorship property, insurance with a named beneficiary, and RRSPs or RRIFs with a named beneficiary, are excluded.

Reducing or avoiding the deemed gain

Two common rules can reduce the gain on the final return:

• Spouse rollover: 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. The legal representative can elect out.
• Principal residence: gains may be wholly or partly exempt, but the home must be designated using Schedule 3 and Form T1255.

Which rules apply depends on who receives what, so an accountant or lawyer can confirm how they fit your facts.

RRSPs and RRIFs

The fair market value of an unmatured RRSP at death is included in the deceased's income on line 12900 of the final return, and a RRIF on line 13000.

There is an exception for spouses. If the 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. The spouse reports it and deducts the transfer. A post-death decline in value can be deducted if the plan is fully paid out by the end of the following year, using Form RC249.

An RRSP or RRIF with a named beneficiary passes outside probate, but the value is still included in the deceased's income on the final return, unless an RRSP is transferred to the spouse's RRSP as described above.

Deadlines, penalties and the estate's own return

Late filing with a balance owing attracts a penalty of 5% plus 1% per full month, up to 12 months. If the deceased or their spouse ran a business, the filing date may be June 15 of the following year (for a death January 1 to December 15), but payment is still due on the regular date.

Income the estate earns after death is reported on a T3 trust return, and a graduated rate estate can choose any year-end up to one year after death. A T3 return is due 90 days after the estate's year-end.

Protecting yourself as executor

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. Form TX19 requests the certificate only after returns are filed, notices of assessment are received and tax is paid, and assessment can take up to 120 days. Final distribution cannot occur until the certificate is received.

Distribution may also be delayed six months after Letters are obtained where a dependant may claim under The Dependants' Relief Act, 1996 or a spouse may apply for division of family property. Debts of the deceased are paid from the estate and must be paid before any gifts in the will go to beneficiaries.

• Note the date of death to confirm the final return deadline.
• List property and its value at death for Schedule 3.
• Check whether any RRSP or RRIF goes to a spouse.
• Confirm whether a principal residence designation applies.
• File returns, pay tax, then request the clearance certificate before distributing.
• Ask an accountant or lawyer about anything unclear.

Frequently asked questions