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Canada has no inheritance tax, so the people who receive a house don’t pay tax just for receiving it. But the tax doesn’t vanish. When someone dies, the CRA treats them as having sold their property at its fair market value just before death, and any gain goes on their final tax return. That tax, plus provincial probate fees, is paid out of the estate.
What happens to a house when the owner dies
The deceased is treated as having sold everything they owned, even though nothing was sold. The value used is fair market value on the date of death. The gain is that value, less the adjusted cost base. Half of a capital gain is taxable, and it goes on Schedule 3 of the final return.
The heir then takes the house at that same fair market value as their own cost. So if they sell it soon after at about the same price, there’s little or nothing further to tax. The gain that built up before death was taxed once, on the final return, and the heir’s clock starts fresh.
If the heir waits and sells for more, only the growth after the date of death is theirs to report. Inherit a house valued at $900,000 and sell it later for $950,000, and the gain is $50,000, of which $25,000 is taxable.
The CRA’s page on doing taxes for someone who died is the place to start for the returns that have to be filed.
Three ways the tax can shrink or wait
| Situation | What the CRA says |
|---|---|
| House was the deceased’s principal residence | The gain may be exempt, but it must still be designated on the final return |
| Left to a spouse or common-law partner | No gain or loss on the final return if the property is locked in for the spouse within 36 months of death |
| Legal representative elects out of the spousal rollover | The gain is taxed on the final return at fair market value |
Source: CRA guidance on preparing returns for someone who died. The spousal rollover postpones the tax until the spouse sells the property or is treated as selling it.
Think of a mother’s home bought for $200,000 and worth $700,000 at death. The gain is $500,000, and half of it, $250,000, would be added to her income if the house weren’t treated as her principal residence. Designating it on the final return is what keeps that from happening, and it’s a box that’s easy to miss in a hard month.
A worked example with a rental house
Say a parent owned a rental house bought for $350,000 and worth $900,000 at death. It wasn’t their home. The gain is $550,000, so $275,000 is taxable. If they had $60,000 of other income on the final return in Ontario, our capital gains tax calculator puts the extra tax at about $125,000, which is 22.7% of the gain.
The estate pays it. The children then inherit a house with a new cost base of $900,000. If the parent was married and the house went to a spouse with the rollover in place, that $125,000 wouldn’t be due yet.
The income tax calculator shows how a large gain pushes the final return into higher brackets, and the marginal tax rate calculator shows the rate on the last dollars.
Probate is a separate bill
Probate fees aren’t a tax on the inheritance either. They’re a court fee that depends on the province. In Ontario the estate administration tax is nothing on the first $50,000 and $15 for each $1,000 or part of $1,000 above that. On a $900,000 estate that goes through probate, it comes to $12,750.
Not everything is counted. Ontario excludes jointly owned assets, real estate outside the province and registered accounts with a named beneficiary. Other provinces use their own schedules, and Quebec charges a flat court fee for verifying a will rather than a fee on the value. Try the estate administration tax calculator for your province.
Mistakes families make
The biggest one is assuming the house passes free. The second is forgetting the designation on the final return when the home was a principal residence, because the exemption still needs to be claimed. The third is not leaving cash in the estate, so the executor has to sell the house quickly to pay the tax.
If you’re an executor and the numbers are large, an accountant who does estate returns earns their fee. We don’t quote prices for that. Ask how they charge before you hire.
Where this information comes from
Deemed disposition, the spousal rollover and the principal residence rules come from Canada Revenue Agency pages on returns for someone who died. The Ontario fee comes from the Ontario government page, updated June 2026. Tax figures come from our engine, and the house values are examples. This site is independent and isn’t a government or legal service.
Frequently asked questions
Is there an inheritance tax in Canada?
No. The tax comes from the deceased person's final return, where property is treated as sold at fair market value.
Does the person inheriting a house pay tax on it?
Not for receiving it. Their cost is the fair market value at death, so later tax applies only to growth after that.
Can a house go to a spouse without tax?
Yes, under the spousal rollover, if the property is locked in for the spouse within 36 months of death. The tax is postponed, not cancelled.
Is the family home taxed at death?
The principal residence exemption can cover it, but it has to be designated on the final return.
How much is Ontario probate on $900,000?
The estate administration tax is $12,750 if the whole amount passes through the estate.
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