Q:

How does the Canadian inheritance tax work?

A:

Quick Answer

Canada does not charge any inheritance tax; however, before distributing money to inheritors, the deceased person's estate must settle final taxes with the Canada Revenue Agency, states TurboTax. These final taxes include capital gains tax on property, bonds and Registered Retirement Savings Plans.

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Full Answer

The CRA offers exceptions to some taxes on estates if assets are being inherited by a surviving spouse or common-law partner, states TurboTax. Upon the death of a person in Canada, all non-registered assets, including property, stocks, bonds and mutual funds, are considered sold by the CRA and subject to capital gains tax, states the Financial Post. Partners may avoid some of these taxes by transferring property to a spouse before death.

The CRA defers taxes on registered assets, such as RRSPs, if they are left to a surviving spouse or partner, explains the Financial Post. Individuals may also leave registered assets to dependent children or grandchildren under 18, to be put into a registered annuity.

All of this means that, despite the fact that Canada does not have a specific inheritance tax, beneficiaries often receive much less than the paper value of a person's assets at death, states Canadian Living. However, there are no additional taxes to pay once an inheritor receives his inheritance.

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