Inheritances themselves are not taxable income in Canada, and there is no inheritance tax at the federal level. However, what you inherit and how you manage it after receiving it can trigger tax obligations. The income generated from inherited assets (like interest, dividends, or rental income) is taxable, and certain property dispositions may result in capital gains tax. Understanding these rules helps you plan effectively and avoid unexpected tax bills. When you inherit money, property, or investments, the inheritance itself is not reported as income on your tax return. This applies whether you inherit from a parent, spouse, relative, or any other person. The CRA treats inheritances as a transfer of assets, not earned income. However, the income generated after you receive those assets is fully taxable. If you inherit a rental property, you must report the rental income. If you inherit a brokerage account with dividend-paying stocks, those dividends are taxable. If you inherit a cottage or vacation property, you may face capital gains tax when you eventually sell it. One important rule concerns capital gains. When you inherit property, the adjusted cost basis is usually stepped up to its fair market value on the date of death.
No, the inheritance itself is not taxable income. However, any income the inherited assets generate (interest, dividends, rental income) is fully taxable, and you may owe capital gains tax if you sell inherited property at a profit.
If you are the surviving spouse, you can roll over an inherited RRSP or TFSA into your own account tax-free. If you are an adult child, the RRSP becomes taxable income (usually spread over a few years under certain conditions), and the TFSA is closed and becomes taxable.
No, probate and estate administration costs are paid by the estate before distribution and are not tax deductible for beneficiaries. They reduce the amount you inherit but do not directly lower your personal tax bill.
The adjusted cost basis of inherited property is stepped up to its fair market value on the date of death. You calculate capital gains using this date-of-death value, not the original purchase price. Use our capital gains calculator to estimate the tax.
Keep documentation showing the fair market value on the date of death, original purchase price, any improvements made, and receipts for related expenses. Retain these for at least six years in case the CRA asks questions about income or capital gains.