INHERITANCE & TAXATION — KEY POINTS IN CANADA (Quebec)

1. There is no inheritance tax in Canada

Unlike the United States or some European countries, Canada does not impose inheritance tax.

But… it imposes a tax on deemed capital gains upon death.

👉 Death = deemed disposition of all assets at market price.

This creates a capital gain that may be taxable.

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2. Tax implications upon death

Here is what is generally taxable:

🔸 Real Estate

• Main residence: exemption (no tax).

• 2nd building / rental building:

  
  

  → Taxable capital gains (included at 50% in the income of the last tax return).

  
  

  → Recovery of depreciation if applicable.

🔸 RRSP / RRIF

• Taxable at 100% in the last tax return if it is not transferred to the spouse.

🔸 Company shares / investments

• Capital gains on accumulated value.

• Possibility of using the Capital Gains Deduction (CGD) if shares of qualifying CCPC ($1M+).

🔸 Foreign goods

• Always taxable in Canada + sometimes double taxation depending on the country (taxes).

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3. Exemptions and advantageous transfers

✔ Transfer to spouse (tax rollover)

• No immediate tax.

• The assets pass to the spouse without tax, deferred only until their death.

✔ Rollover to a spousal trust

• Possibility via exclusive testamentary trust for the spouse (more flexible in terms of control).

✔ Small businesses – DGC ($1,250,000 since 2024)

• May reduce corporate stock tax upon death.

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4. Inheritance costs and obligations

Even though there is no "inheritance tax", there are other costs:

🔸 Approval (probation)

• Quebec: no probate if notarized will.

• Other provinces: variable fees.

🔸 Final tax (T1 return – Last return)

• Sometimes

🔸 T3 tax return (estate trust income)

🔸 Administration:

• Liquidator / Executor

• An accountant

• Notary

• Market ratings

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5. Planning tools to reduce inheritance tax

1. Trust (Family Trust, testamentary trust, spousal trust)

• Allows you to freeze the value.

• Reduces future taxes.

• Protects the heritage.

2. Estate Freeze

• To freeze the value of a company to avoid tax on future appreciation.

3. Life insurance

• A powerful tool for:

  
  
  
  

  • pay the tax upon death

  • protect the cash flow of the heirs

  • optimize business transfer

4. Planned donation (before death)

• It's better to give away certain assets during your lifetime to control the tax impact.