Inheritance Tax is also termed as estate tax, and is paid by the person who inherits the property. In Canada, Inheritance Tax was abolished by the Pierre Trudeau government in 1972. Although the inheritance tax was abolished the government has found ways to get a portion of the estate of a deceased person. When a person dies and has no surviving spouse or a common law partner, who can inherit the property, then all his non-registered assets is deemed to be sold.
On this deemed sale at a fair market value, tax is levied in the form of capital gains tax, in the last tax return of the deceased. One should note that only the gain is taxed and not the whole amount which is recovered from the deemed sale. This tax is collected from the estate of the deceased. All non-capital assets like interest and other income which is non-registered is taken into account in the last tax return and charged at the usual tax rate. This does not get included in the estate tax return.
Retirement Income Funds and Saving Plans which are registered, are closed and are disbursed to the beneficiaries and are taken to be withdrawals. This is taxed at the usual income tax rate applicable to the deceased person and is treated as income from the estate and capital gains are not reduced.
Non-registered assets which are securities giving a fixed income will attract a minimal capital gains tax, but if there are equities and second homes the tax could be astronomical.
When there is a surviving spouse there are no taxes, and this process will again commence if the spouse also dies. There is a mixed feeling about Canada Inheritance Tax, and some feel that the tax should be brought back, instead of having this deemed sale and taxing it. Others find the present system to be quite adequate as the surviving child or spouse does not have to pay any tax.
If a person in Canada wants to be sure of bequeathing his assets and estate, without incurring a heavy tax burden, he should consult a tax lawyer or an expert in family estate planning. A bank representative who is a specialist in estate planning will give you free advise while the lawyer will charge a heavy fee. It is always better to have your estate planned so that money is not lost on excessive taxation after death.