Does Canada have an inheritance tax?
No. Canada does not have an inheritance tax. Beneficiaries who receive an inheritance do not pay tax on it. However, the deceased's estate is taxed. The Income Tax Act deems the deceased to have disposed of all capital property at fair market value immediately before death, potentially triggering capital gains. RRSP and RRIF balances are included as income in the year of death (unless rolled over to a surviving spouse or financially dependent child).
Are RRSP and RRIF funds taxable at death?
Yes, unless transferred to an eligible beneficiary. If the RRSP or RRIF beneficiary is a surviving spouse or common-law partner, the funds roll over tax-free. If the beneficiary is a financially dependent child or grandchild (disabled or infirm — any age; or under 18 for RRSP annuity), a rollover is also available. Otherwise, the full RRSP/RRIF balance is included as income on the deceased's final T1 return and taxed at the applicable marginal rate — potentially the top rate.
Is the principal residence exempt from capital gains at death?
Yes. The principal residence exemption (PRE) eliminates capital gains tax on the appreciation of your principal residence. The deemed disposition at death applies the PRE if the property qualifies — typically meaning it was your main residence for each year you owned it. Vacation properties, rental properties, and investment properties do not qualify and are subject to capital gains on the deemed disposition at death.