Beneficiaries do not pay income tax on money or property inherited in Ontario, as Canada has no direct inheritance tax. Taxes are paid by the deceased person’s estate before distribution, not by the recipient. The estate must pay income taxes on the final return, capital gains, and Estate Administration Tax (probate).
In Canada, there is no inheritance tax. You don't have to pay taxes on money you inherit, and you don't have to report it as income. But this doesn't mean your inheritance is immune from taxation. Why?
If you received a gift or inheritance, do not include it in your income. However, if the gift or inheritance later produces income, you will need to pay tax on that income.
You can typically inherit a very large amount from your parents without paying federal tax, as the federal estate tax exemption is around $15 million per person for 2026, meaning only estates larger than that pay tax, not you directly. While you generally don't pay income tax on inheritances (except for pre-tax retirement funds like IRAs/401(k)s, which are taxed as income when withdrawn), some states have their own estate or inheritance taxes with much lower thresholds, affecting a smaller portion of wealth.
Estate Planning: Strategies for Reducing or Postponing Taxes
"Money received from an inheritance is not considered taxable income by the Canadian Revenue Agency (CRA). This means that Canadian beneficiaries don't have to pay taxes on that money or report it as income on your tax return.
The three year rule affects certain gifts and transfers made within three years of death. Here's a straightforward breakdown: If you transfer certain assets or give up control over them within three years of your death, those assets might be included in your estate for tax purposes.
In 2025, the first $13,990,000 of an estate is exempt from federal estate taxes, up from $13,610,000 in 2024. Estate taxes are based on the size of the estate. It's a progressive tax, just like the federal income tax system. This means that the larger the estate, the higher the tax rate it is subject to.
Inheriting $100,000 or more is often considered sizable. This sum of money is significant, and it's essential to manage it wisely to meet your financial goals. A wealth manager or financial advisor can help you navigate how to approach this.
You can typically inherit a very large amount from your parents before hitting federal estate tax thresholds, which are around $15 million per individual in 2026, meaning most heirs receive tax-free inheritances because estates rarely exceed this limit; however, some states have their own estate or inheritance taxes, and income from inherited assets (like IRAs or rental income) is usually taxable, according to this U.S. Bank article, this Fidelity article, this Domain Money article, and this Tax Foundation article.
Your beneficiaries (the people who inherit your estate) do not normally pay tax on things they inherit. They may have related taxes to pay, for example if they get rental income from a house left to them in a will.
Tax-Free Savings Account (TFSA): You can withdraw money from your TFSA and gift it to your heirs during your lifetime without being taxed. Tax-Free First Home Savings Account (FHSA): If you want to take out funds from your FHSA to make a cash gift, your withdrawal will be taxable.
In Canada, federal gift and estate taxes were repealed in 1972 and provincial wealth transfer taxes were abolished in the 1970s and 1980s.
In general, any inheritance you receive does not need to be reported to the IRS. You typically don't need to report inheritance money to the IRS because inheritances aren't considered taxable income by the federal government.
Large inheritance ($500,000)
You could also use some of the money to remodel your house or buy a vacation property. Sometimes, people who inherit a large sum of money decide to invest it and preserve the principal, then use the proceeds to fund other expenditures.
Yes, you can likely give your daughter $50,000 tax-free by using your annual gift exclusion and lifetime exemption, but you'll need to file Form 709 with the IRS to report the gift exceeding the annual limit ($19,000 in 2024/2025). The $50,000 gift reduces your large lifetime exemption (over $13 million in 2024/2025), meaning you won't pay tax on it unless your total lifetime gifts exceed that huge amount; your daughter never pays gift tax on the money.
Charity exemption
Like the spousal exemption, assets passing to charity on death are exempt from inheritance tax. As such, if an entire estate passes to charity, there will be no inheritance tax due.
You must report foreign inheritance to the IRS if you receive more than $100,000 from a non-US resident alien. This also applies if you receive multiple inheritances that add up to $100,000 within a single year.
In general, executors are expected to distribute assets within several months to a year, though larger or contested estates may take longer. Probate courts often set deadlines for filings, but final distribution typically occurs only after debts, taxes and administrative expenses are settled.
As mentioned, if the inherited property was the deceased's principal residence, selling it within two years of their death can result in a full CGT exemption. This is one of the simplest and most effective ways to avoid paying CGT.