Is There an Estate Tax in Ontario? How Death Is Taxed

People often ask whether Ontario has an estate tax or an inheritance tax that heirs must pay. The answer is more about how death is taxed than about one named tax.

Instead of a tax on what each heir receives, the system taxes the deceased person's income and property gains on a final return, and Ontario charges a fee-like tax on probated estates. Here is how each part works.

Where tax actually arises at death

Three things generally drive tax after a death in Ontario. First, a final income tax return must be filed for every person who dies, reporting income and property gains up to the date of death. Second, the person is deemed to have disposed of each capital property immediately before death at fair market value. Third, Ontario charges Estate Administration Tax when an estate certificate is applied for.

The tax from the first two is reported on the deceased's final return, and balances owing to CRA are paid out of the estate's assets. For the tax arising from the deemed dispositions at death, the legal representative can elect, and provide security acceptable to the Minister, to pay it in up to 10 equal annual instalments. There is also an exception: a person who receives RRIF amounts because of the annuitant's death is jointly and severally liable with the deceased for part of the deceased's tax for the year of death, so CRA can collect that part from the recipient. The estate pays the Estate Administration Tax, not the estate representative.

The deemed sale of property

CRA treats a deceased person as having sold all their property just before death, even if nothing was sold. The person who receives the property generally takes the fair market value at death as their cost. Only the taxable portion of a capital gain is included in income, and the inclusion rate is one-half.

This covers real estate such as homes and cottages, investments such as stocks, mutual funds and crypto-assets, and belongings such as art, collections and jewellery. Common exceptions include:

• Property passing to a surviving spouse or common-law partner, or a qualifying spousal trust, generally rolls over at the deceased's adjusted cost base instead of fair market value, as long as it vests indefeasibly in the recipient within 36 months after the death, and the Minister can extend that period.
• The family home may be covered by the principal residence exemption, though it must generally still be designated on the final return. If the home passes to a surviving spouse or common-law partner, no designation for the period before death has to be reported on the final return.
• Qualified farm or fishing property transferred to a child has a separate exception.

If the estate later sells property, growth after death is the estate's gain, not the deceased's.

RRSPs, RRIFs and TFSAs

An unmatured RRSP is treated as paid out at its fair market value immediately before death, and that amount is included in income on the final return. If the plan goes directly to a surviving spouse or common-law partner's own registered plan before the end of the year after the death, the survivor reports it instead. A surviving spouse or common-law partner can also continue a RRIF as successor annuitant.

A TFSA works differently. No TFSA income is reported on the final return, but 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 account and growth stays sheltered.

Ontario's Estate Administration Tax

Estate Administration Tax is charged on the value of the estate when an estate certificate is applied for. It is paid as a deposit with the application to the Superior Court of Justice and becomes the tax when the certificate is issued. For certificates applied for on or after January 1, 2020, there is no tax on estates of $50,000 or less, and $15 for each $1,000 or part of $1,000 over $50,000.

Not everything counts toward the value. 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 are excluded. An Estate Information Return must be filed with Ontario's Ministry of Finance within 180 calendar days after the certificate is issued, even if the value is $0.

What to do next

If you are dealing with an estate, start by identifying the assets, who is named on registered plans, and whether a spouse or common-law partner survives, since those facts decide much of the outcome.

• Get the death certificate and a complete copy of the will.
• List assets with date-of-death values and original costs.
• Check beneficiary designations on RRSPs, RRIFs and TFSAs.
• Note whether the home qualifies for the principal residence exemption.
• Speak with a lawyer or accountant before distributing anything to beneficiaries.

Frequently asked questions