Many clients in Surrey and across British Columbia ask us, “Does Canada have an inheritance tax?” The simple answer is no, not since the federal government abolished it in 1972.
However, that is not the end of the story. The CRA still collects a significant amount when someone passes away through a process involving the “final tax return.” This tax can be a major shock for unprepared families holding high-value real estate in the Lower Mainland.
This guide breaks down the real “death tax” and explains exactly how tax and estate planning in BC works to protect your legacy.
Is Inheritance Taxable in Canada?
Let’s be clear: there is no direct “inheritance tax” in Canada. If you are a beneficiary in Surrey, White Rock, or Langley receiving money from an estate, you generally do not pay tax on that inheritance.
The critical distinction is this: taxes are paid by the estate of the deceased person before any assets are distributed. The tax bill is settled by the estate itself, not by the people who inherit it.
The Real “Death Tax”: Capital Gains on Death
The primary source of the estate’s tax bill comes from a tax rule called “Deemed Disposition.”
The Canada Revenue Agency (CRA) treats the situation as if the deceased person sold all their major assets like stocks, rental properties, or a family cottage, for their full market value on the day they died. This “pretend” sale triggers capital gains tax.
- How it works: A capital gain is the profit made when an asset is sold for more than its purchase price.
- The Tax Hit: Under deemed disposition, 50% of this profit is added to the deceased person’s income on their final tax return and taxed at their marginal rate.
For example, let’s look at the math for a cabin in the interior or a rental condo:
- Current Market Value: $400,000
- Original Purchase Price: – $200,000
- Total Capital Gain (Profit): = $200,000
Under Canadian tax rules, the estate does not pay tax on the full profit. Instead, an “Inclusion Rate” applies. For the first $250,000 of capital gains, this rate is 50%.
- Taxable Amount (50%): $100,000
This means $100,000 is added to the deceased person’s final income tax return and taxed at their top marginal rate.
(Note: For capital gains exceeding $250,000, the inclusion rate increases to 66.7%, resulting in an even higher tax bill.)
Inheritance and BC Real Estate: A Local Reality Check
While there is no “inheritance real estate tax,” the deemed disposition rule hits hard in British Columbia, where property values have skyrocketed.
For families in Metro Vancouver, the capital gains on a secondary property (like a rental condo in Surrey or a cabin in Whistler) can be massive. Unlike your principal residence (which is usually exempt), these secondary properties are fully exposed to capital gains tax.
In many cases, we see at Phoenix Knight, the tax on these properties is the single largest liability the estate faces, often forcing families to sell the asset just to pay the CRA.
How Strategic Planning Can Protect Your Legacy
The tax bill from a deemed disposition can be devastating without a plan. The good news is that this outcome can be avoided.
This is where professional Tax & Estate Planning becomes essential. As a Surrey-based firm serving all of BC, we use specific structures to lower that final bill. These strategies include:
- Life Insurance: Using policies to provide immediate liquidity to cover the tax bill.
- Family Trusts: Setting up trusts to hold property, which can bypass the estate and offer long-term tax advantages.
- Gifting Assets: Transferring assets to family members while you are alive (careful planning is required here to avoid triggering early taxes).
- Charitable Giving: Making strategic donations to generate tax credits that offset the estate’s liability.
Don’t Forget Probate Fees
In addition to the final income tax, estates in British Columbia must pay probate fees. Probate is the legal process by which the Supreme Court of BC confirms a will is valid.
Probate fees in BC are roughly 1.4% of the estate’s value. While this sounds small, on a $2 million Surrey home, the fees add up quickly.
Read More: Understanding Probate Fees in BC (2026 Guide)
It is important to know that these fees are paid directly from the estate’s funds, and effective planning can often reduce or eliminate the assets subject to probate.
Planning is Your Best Defence
While Canada does not have an official inheritance tax, the “deemed disposition” rule acts as a stealth tax on your net worth at the time of death. Without a proper plan, a large portion of your estate’s value could go to the CRA instead of your children.
Do you have questions about your estate plan?
At Phoenix Knight Financial Solutions, we specialize in high-net-worth tax strategies for families in BC and across Canada.
Contact us today to ensure your family’s future is secure.
