Inheriting Foreign Property as an Ontario Beneficiary: Tax and Reporting

Inheriting land or bank accounts abroad adds two layers: the foreign country's own rules, and Canadian reporting duties for you as an Ontario resident. Each country may treat the same asset differently.

This article covers the Canadian side in general terms. Foreign law is outside what it can explain, so a lawyer or accountant who can work across both countries is worth consulting.

Is the inheritance taxed in Canada?

The CRA lists most gifts and inheritances as amounts that are not reported or taxed for the person who receives them. That is the starting point, but it is not the end of your duties.

The foreign country may impose its own taxes or require its own court process. Those rules vary and are not covered here.

Reporting foreign property: Form T1135

A Canadian resident whose specified foreign property costs more than $100,000 in total at any time in the year must file Form T1135. For property received as an inheritance, the cost amount is its fair market value at the time of the inheritance.

The $100,000 test is about the total cost of all specified foreign property, so inherited property is added to anything else you already hold abroad. Keep records of the value on the date you inherited.

Tax at death and when you later sell

Capital property, including inherited houses and land, is treated as disposed of immediately before death at fair market value, and any gain or loss is reported on the deceased's final return. If you later sell, the sale is measured against the fair market value reported on that return.

• Property passing to a surviving spouse or common-law partner, or to a qualifying testamentary spousal trust, may result in no capital gain or loss on the final return, if the property vests in the spouse within 36 months of death.
• Even when the principal residence exemption covers the whole gain, the legal representative must still designate the home as a principal residence on the final return using Schedule 3 and Form T1255.

Whether these rules apply to a specific foreign asset, and how they interact with the foreign country's tax, should be confirmed with an accountant.

US property and the estate

If the property is in the United States, Article XXIX B of the Canada–United States Tax Convention lets US estate tax paid on US-situs property reduce Canadian tax for a Canadian-resident decedent. The estate of a non-citizen non-resident also gets a pro-rated US unified credit. US exemption amounts and rates are set by US law, so get local advice.

For Ontario probate purposes, the estate value used for Estate Administration Tax excludes real estate outside Ontario. That does not mean foreign property needs no process; the foreign country may require its own.

What to do next

• Gather the death certificate, any will, and statements or deeds for the foreign assets.
• Record the fair market value at the date of inheritance for your own tax records.
• Add up the cost of all your specified foreign property to see whether Form T1135 applies.
• Ask the estate trustee whether the final return reports the deemed disposition.
• Be cautious of anyone asking an upfront fee to release an inheritance; that is a warning sign of fraud.
• Consult an accountant, and a lawyer in the foreign country if needed.

Frequently asked questions