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What are the inheritance tax laws in Canada?

Technically speaking, Canada does not have inheritance tax. Rather, the Canada Revenue Agency sees the transfer of an estate's wealth after someone's death as a "sale." If the estate is not received by a common-law partner or a surviving spouse, then the estate will pay taxes owed to the CRA instead of the beneficiaries needing to pay it. As such, beneficiaries themselves should not need to worry about the taxes.

Here's how inheritance tax laws work. After someone passes away, the legal representative of that person will submit a deceased tax return to the Canadian government. Taxes still owed at that time will be removed from the decedent's estate. Next, the estate will be settled by the executor after all the taxes have been paid. Later, after the clearance certificate is received, the estate and its property can be distributed to heirs.

As for specific taxes that the estate will pay, those include taxes on income earned by the decedent. They also include taxes on non-registered capital assets, which are considered sold at the moment of the decedent's passing. Capital gains resulting from those sales are then hit with 50 per cent fees. Registered Retirement Savings Plan or a Registered Retirement Income Fund are also taxed.

When planning a British Columbia estate, lawyers may be able to organize the estate in a way that prevents and/or limits huge estate-related taxes. A lawyer will be able to determine what savings can be achieved given the unique facts and information surrounding the estate, and families are often surprised at just how much money can be saved through this process.

Source: Turbo Tax, "Canada Inheritance Tax Laws & Information," accessed Sep. 16, 2016

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