Do I Pay Tax on an Inheritance in Canada?

The verdict

No, in general, you do not pay tax on an inheritance itself. Federally, which means the same rule applies whether you’re in Ontario, Alberta, or anywhere else in Canada, most gifts and inheritances received by an individual are not taxable and do not need to be reported as income. This is Canada Revenue Agency (CRA) guidance, not a provincial rule, so it does not change based on where you or the deceased lived.

What often gets confused with an “inheritance tax” is a different mechanism entirely: Canada taxes the deceased person, not the heir, on the growth in their property’s value up to the date of death. That tax is calculated and paid out of the estate before anything reaches you.

Why there’s no inheritance tax, but there might still be tax on the estate

Instead of taxing what you receive, the Income Tax Act treats the deceased as having sold all their capital property immediately before death, at fair market value. Section 70(5)(a) puts it this way:

“the taxpayer shall be deemed to have, immediately before the taxpayer’s death, disposed of each capital property of the taxpayer and received proceeds of disposition therefor equal to the fair market value of the property immediately before the death”

This is called a deemed disposition. If the deceased’s investments, real estate, or other capital property grew in value since they bought it, that increase becomes taxable income on their final tax return, filed by the estate. It’s a tax on the person who died, settled by their estate, not a separate tax charged to you as the person inheriting.

Once that tax is settled and the property passes to you, your cost base (what you’re treated as having paid for it) becomes its fair market value at the time you received it. That matters later: if you eventually sell the inherited property and it has grown in value since you received it, you could owe capital gains tax on that later increase, calculated from the date you inherited it, not from what the original owner paid decades earlier.

Exceptions that change the timing or the tax bill

A few situations shift when and to whom the deemed-disposition tax applies:

• Spousal or common-law transfers. Property left to a surviving spouse or common-law partner (or a qualifying spousal trust) can defer the deemed-disposition tax entirely, as long as the property is locked in for that spouse or partner no later than 36 months after the date of death.
• RRIFs. An inherited Registered Retirement Income Fund is generally taxed at its fair market value on the deceased annuitant’s own return, not the beneficiary’s, unless it’s rolled over to a qualified beneficiary. If the RRIF’s value keeps growing between the date of death and when it’s actually paid out, that additional growth is taxable income to the beneficiary or estate in the year it’s received.
• Foreign or inherited property generally. Property acquired by gift, bequest, or inheritance takes on a cost base equal to its fair market value at the time you received it, which is the starting point for any capital gain if you sell it later.

Provincial probate fees: not a tax on you, but easy to confuse with one

Ontario and Alberta both charge a fee to obtain probate (the court process confirming an executor’s authority over the estate, formally a Certificate of Appointment of Estate Trustee in Ontario). This fee is charged to the estate, before assets are distributed, not to you as a beneficiary, but it’s the closest thing either province has to an “inheritance tax” and is often mistaken for one.

In both provinces, if the estate doesn’t need to go through probate at all (for example, assets pass directly by beneficiary designation or joint ownership), this fee doesn’t come up.

What you can do next

Since the tax obligations here fall on the deceased’s final return and the estate, not on you personally, the practical questions for a beneficiary are usually about paperwork rather than a tax bill:

• Ask the executor or estate trustee whether the estate’s final return, including any deemed-disposition gains, has been filed and any resulting tax paid before distribution.
• If you’re inheriting a RRIF, RRSP, or similar registered plan, confirm with the plan administrator whether it’s rolling over to you as a qualified beneficiary or being paid out as a lump sum already taxed to the deceased.
• Keep a record of the fair market value of any property you inherit as of the date you received it. That figure becomes your cost base if you sell it later and need to calculate a capital gain.
• If the estate is going through probate in Ontario or Alberta, the executor, not the beneficiaries, is responsible for the provincial fee described above.