Does Canada have an inheritance tax? No — but three other bills arrive at death

The question usually arrives in almost the same words: how much of this will my children lose to tax? The literal answer is none. Canada has no inheritance tax, no estate tax, and no succession duty. Your heirs are not taxed on what they receive.

That answer is also misleading, because the tax was not removed in 1972. It was moved. Instead of taxing the person receiving, Canada taxes the person leaving — once, on the way out, and usually more heavily than the inheritance tax it replaced.

Bill one: the deemed disposition

Under section 70(5) of the Income Tax Act, you are deemed to have sold every capital property you own at fair market value immediately before death. Your final return reports the resulting gains. Nothing was actually sold, and no cash was received, but the tax is real and it is due.

The principal residence exemption shelters the gain on one property per family. It does not cover the cottage, the rental, the Florida condo, or the non-registered portfolio — which is precisely where the gains have accumulated for most Ontario households that own more than a house.

Bill two: registered accounts collapse as income

An RRSP or RRIF is not a capital property. Its full fair market value enters the terminal return as ordinary income — no 50% inclusion, no capital gains treatment. A $600,000 RRIF adds $600,000 of income in a single year, and almost all of it lands at the top rate.

The spousal rollover defers both of these bills. Capital property transfers to a surviving spouse or common-law partner at cost rather than fair market value, and registered accounts roll into the survivor's plan. Nothing is forgiven; it is postponed to the second death.

One detail worth checking tonight: a spouse named as TFSA successor holder takes the account over intact and it continues to grow tax-free. A spouse named merely as beneficiary does not — the account collapses at death and growth after that point becomes taxable. The two options sit one line apart on the same form and produce materially different results.

Bill three: Ontario Estate Administration Tax

Ontario charges nothing on the first $50,000 of the probated estate and $15 per $1,000 — 1.5% — above it. A $1.5 million probated estate pays $21,750. It is a genuine cost and worth planning around, but note the order of magnitude against the $214,120 in the table above. Distorting an estate to avoid the smaller number while ignoring the larger one is the most common planning error in this area.

The fourth bill, if you own US stocks

This one surprises people, and it reaches further into ordinary Ontario portfolios than most expect. The United States taxes non-residents on assets it considers US-situs — and the test looks at the asset, not at where the account is held or who your broker is.

The line that catches people is the first one. Holding US shares inside an RRSP or a RRIF does not remove their US-situs character. The registered wrapper is a Canadian tax concept, and the IRS does not recognise it for this purpose.

Here is the part that most commentary gets wrong, in the alarming direction. The treaty gives you a share of the US exemption in proportion to your US holdings: the full exemption multiplied by US-situs assets divided by worldwide gross estate. Work that through algebraically and the pro-ration cancels out. The credit only fails to cover the US assets when the worldwide estate itself exceeds the exemption.

Which makes the filing obligation, not the tax, the real issue for most families. US$60,000 is a threshold for filing Form 706-NA, not an exemption from it. An estate can owe no US tax whatsoever and still be required to file — and the transfer certificate that releases the shares to the executor depends on that filing. Families usually discover this when a US broker freezes the position and will not move it, months into an administration that everyone assumed was straightforward.

Two caveats worth carrying. State estate tax is a separate regime from the federal one, and some states levy it at far lower thresholds — Florida and Arizona levy none, which is one more reason the location of a US property matters. And the treaty credit has to be claimed; it is not applied automatically to an estate that never files.

Does the trade war change any of this?

No. Tariffs are customs duties on goods crossing the border. US estate tax is levied under the Internal Revenue Code and allocated by a treaty signed in 1980, and neither moves when a tariff schedule does. Nothing about your US shares changed when negotiations broke down in August 2026.

There is one adjacent development worth knowing about, because it is the channel through which a trade dispute could reach investment income. In 2025 the US House passed a provision — Section 899 — that would have raised US withholding and income tax rates on residents of countries the US deemed to impose unfair taxes, by up to 20 percentage points above treaty rates. Canada was squarely in scope because of its Digital Services Tax. The measure was withdrawn in late June 2025 after Canada repealed the DST and the G7 reached an agreement, and the tax bill signed on 4 July 2025 did not contain it.

So it is not law, and nothing is in effect. What it demonstrated is a willingness to override treaty rates by statute. If that instrument ever returns, the exposure would show up first in the 15% treaty withholding rate on US dividends — not in the estate rules described above.

What the planning is actually for

Not avoiding the tax. The deemed disposition cannot be avoided, only deferred to the second death. The real problem is liquidity and timing: the CRA bill on the terminal return comes due while the assets that generated it are illiquid. That is the mechanism by which cottages get sold.

1. 1Estimate the terminal bill. Take fair market value less cost base on every property and non-registered holding, add the full value of registered accounts, and apply top-rate assumptions. The number is almost always larger than expected.
2. 2Confirm the spousal rollover is both available and intended, and that beneficiary designations and the will do not accidentally direct assets away from the survivor and trigger tax early.
3. 3Fix the TFSA designation: successor holder for a spouse, beneficiary for anyone else.
4. 4Total your US-situs holdings, including any inside registered accounts. If they exceed US$60,000, the estate has a US filing obligation that should be planned for rather than discovered. Where the holding is incidental, a Canadian-listed equivalent achieves the same exposure without the filing.
5. 5Match liquidity to the estimated bill — permanent life insurance, a segregated liquid reserve, or a documented sale plan agreed in advance. Insurance proceeds arrive tax-free, outside probate, and at the moment the bill is due, which is the exact shape of the problem.

The terminal tax estimate depends on cost base records that are often incomplete, and the US-situs analysis depends on how each holding is actually structured rather than what it is called. Both are worth establishing with your accountant and advisor while the records can still be reconstructed.