- Tax after a death in British Columbia mostly arises through the deceased's final return, where capital property is treated as sold just before death.
- Registered plans such as an RRSP or RRIF are generally included in the deceased's income unless a rollover applies.
- British Columbia charges probate fees under the Probate Fee Act, calculated on the gross value of the estate.
If someone close to you has died, you may be wondering whether British Columbia or Canada will take a share of what you are due to inherit. The question is a common one, and the answer is more about timing and who pays than about a single tax with a single name.
In short, the system works differently from an "inheritance tax" in some other countries. Taxes are generally dealt with through the deceased person's final tax return and through the estate, and British Columbia charges probate fees. This article explains where those costs come from.
This article covers the law of British Columbia.
The short answer
Tax at death mostly arises through the deemed disposition of the deceased person's capital property on the final return, and British Columbia charges probate fees under the Probate Fee Act. The sections below set out where tax and fees arise, including the final return, registered plans and probate fees. Before distributing estate assets, the legal representative should apply for a clearance certificate, because if assets are distributed without one and tax is owing, the representative can be held personally liable for the outstanding tax, up to the value of the assets distributed. An accountant or lawyer can confirm how this applies to a particular estate.
One point to keep in mind: any increase in value of registered plan property between death and the final distribution is taxed to the beneficiary or the estate for the year it is received.
Tax on the final return: the deemed disposition
Under section 70(5)(a) of the Income Tax Act, a person is deemed to have disposed of each capital property immediately before death for proceeds equal to its fair market value at that time. The CRA describes this as the deceased being considered to have sold everything just before death, even though no sale actually happens.
The gain is the fair market value less the adjusted cost base. It is reported on Schedule 3, and the taxable portion goes into income on line 12700 of the final return.
There are important exceptions that can reduce or defer the tax:
- Capital property that vests indefeasibly in a spouse or common-law partner resident in Canada within 36 months after death, or a longer period the Minister allows on written application, is deemed disposed of at adjusted cost base, so no gain arises on the final return and the spouse takes over the cost.
- The legal representative can elect out of that automatic spousal rollover, property by property, and transfers to a qualifying testamentary spousal trust can also be tax-deferred.
- A principal residence must still be designated on Schedule 3 and Form T1255 even if the whole gain is exempt, though a home passing to a spouse on a rollover does not need a pre-death designation.
- Rental property and vacant land are not treated as a principal residence, and a loss on a cottage used for personal enjoyment cannot be claimed.
Registered plans: RRSPs and RRIFs
For an unmatured RRSP, the fair market value of the plan's property at death is included in the deceased's income for the year of death, unless it passes as a tax-deferred refund of premiums to a qualifying beneficiary. A RRIF works similarly: unless a spousal rollover applies, the fair market value at death is included in income for the year of death.
Rollovers exist. If all RRSP property goes directly to the spouse's or common-law partner's registered plan before the end of the year after death, no T4RSP is issued in the deceased's name. A financially dependent child or grandchild, dependent because of an impairment in physical or mental functions, can also receive a tax-deferred refund of premiums.
Probate fees in British Columbia
Probate fees are a separate cost that you may hear described as a kind of estate tax. Under section 2 of the Probate Fee Act, no fee is payable if the estate does not exceed $25,000. Above that, the fee is $6 for every $1,000 or part of $1,000 over $25,000, plus $14 for every $1,000 or part of $1,000 over $50,000.
The fee is calculated on the gross value of the estate in the Statement of Assets, Liabilities and Distribution. British Columbia real and tangible personal property is always included, and intangible property is included only if the deceased was ordinarily resident in British Columbia immediately before death. If an asset was omitted or undervalued, the personal representative must disclose it and pay the difference in fee.
| Cost | Where it arises | Who deals with it |
|---|---|---|
| Income tax on deemed disposition | Final return, Schedule 3 | Legal representative |
| Registered plan amounts | Final return, lines 12900 and others | Legal representative |
| Probate fee | Probate Fee Act | Personal representative |
What to do next
- Ask the executor for a list of the deceased's assets, including registered plans and any real estate.
- Find out whether a spouse or common-law partner is receiving property, since rollovers may apply.
- Ask whether the home is the deceased's principal residence.
- Speak with an accountant about the final return and with a lawyer about probate and the estate's overall position.
Frequently asked questions
Do I pay tax when I receive an inheritance in British Columbia?
How tax applies to your particular inheritance depends on the facts, and the deceased's final return is where much of the tax picture is dealt with. Growth in registered plan property after death is taxed to the beneficiary or the estate for the year it is received. An accountant can confirm your own situation.
Are probate fees the same as an estate tax?
They are a separate fee charged under the Probate Fee Act, based on the gross value of the estate. They are not the same as income tax on the deceased's final return.
Is tax payable on the family home?
The home is treated as sold just before death, but the gain may be exempt if it is designated as a principal residence. A home passing to a spouse or common-law partner on a rollover is reported with a zero gain.
Does a spouse inheriting avoid tax?
Often tax is deferred, because capital property vesting in a spouse or common-law partner resident in Canada within 36 months after death, or a longer period the Minister allows on written application, can roll over at cost. The legal representative can elect out of the rollover property by property.
Sources
- Income Tax Act, s. 70 — Justice Laws (federal)
- CRA – Deemed disposition of property — canada.ca
- CRA – Capital gains (someone who died) — canada.ca
- CRA – RRSP (someone who died) — canada.ca
- CRA – Amounts paid from an RRSP or RRIF upon the death of an annuitant — canada.ca
- CRA – RRIF (someone who died) — canada.ca
- CRA – Legal representative — canada.ca
- Probate Fee Act, s. 2 — bclaws.gov.bc.ca
Links go to official government, court and regulator pages. The law changes — confirm you are reading the current version.
This is a wills & estates question
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