Written by Ron Cooke, President & Founder of Strategic Wealth Protection Partners in Ontario
How to Avoid Estate Tax in Canada
Canada does not have a direct estate tax, but taxes on assets and income after death can significantly reduce the value of an estate.
With the right strategies, you can minimize taxes and ensure more of your wealth is passed on to your loved ones. Keep reading to discover ways that you can minimize the tax and ensure your loved ones are not left with a complex estate.
How does estate tax work in Canada?
Unlike the U.S., Canada does not impose a separate estate or inheritance tax.
Instead, when someone passes away, their estate must settle outstanding tax obligations before distributing assets to beneficiaries. This includes capital gains tax on investments and real estate, income tax on registered accounts like RRSPs/RRIFs, and probate fees in certain provinces.
Strategic estate planning can reduce these taxes and ensure a smoother wealth transfer.
Read More: How Much Is an Estate Taxed in Canada?
What is included as income on your final tax return?
The CRA requires a final tax return for the deceased, which includes:
- All income earned up to the date of death (salary, pensions, business income, etc.).
- Deemed disposition of assets, meaning non-registered investments and secondary real estate are taxed on their increase in value.
- The full value of RRSPs or RRIFs, which are treated as income unless transferred to a spouse or dependent child. (This can result in a large tax hit.)
By planning ahead, you can minimize taxes and protect your estate’s value.
Can life insurance be used to pay the taxes on your final tax return?
Yes, life insurance is one of the best tools to cover estate taxes.
Proceeds from a life insurance policy are tax-free and paid directly to the named beneficiary, avoiding probate and CRA claims. Many Canadians use life insurance to ensure there are enough funds to cover taxes owed on RRSPs, real estate, and business assets, preventing the forced sale of valuable estate holdings.
How can you minimize or avoid tax on an inheritance in Canada?
You can reduce inheritance taxes by:
- Using the principal residence exemption to avoid capital gains tax on a home.
- Transferring RRSPs and RRIFs to a spouse or dependent child to defer income tax.
- Setting up a trust to hold assets outside the taxable estate.
- Gifting assets before death to reduce the value of the estate.
- Owning assets jointly with rights of survivorship to bypass probate.
A financial planner can help structure an estate to minimize tax burdens.
Will my children have to pay taxes on an inherited house in Canada?
If the house was the deceased’s principal residence, no capital gains tax applies when inherited.
However, if the home was a rental property, cottage, or investment property, the estate must pay tax on the increase in value up to the date of death. If your children sell the property later, they will owe capital gains tax on any further appreciation. Using a trust or gifting the property before death can help reduce these taxes.
Is selling a house to your kids for $1 a good idea?
Selling a house to your children for far below market value can trigger unwanted tax consequences.
The CRA will still assess capital gains tax as if the home was sold at fair market value, meaning the parent may face a hefty tax bill. Instead, gifting a home, setting up a trust, or using a structured sale with gradual transfers can be more tax-efficient strategies.
Consider doing the following instead:
- Gifting the property
- Setting up a trust
- Using a structured sale with gradual transfers
What is the best trust to avoid estate taxes?
A living trust (inter vivos trust) is one of the best ways to avoid estate taxes.
Assets placed in a trust are not part of the deceased’s estate, allowing them to bypass probate and reduce tax exposure. For individuals over 65, alter ego trusts and joint partner trusts offer additional tax deferral benefits, allowing for a smooth transition of wealth while maintaining control over assets during one’s lifetime.
Avoid Ontario’s Hefty “Death Tax”
While Ontario doesn’t have a direct estate tax on your total net worth, income tax on capital gains and deemed dispositions can have a significant impact on your estate. These taxes can dramatically reduce the wealth you pass on to your loved ones.
For instance, assets like real estate (excluding your principal residence) and non-registered investments are deemed sold at fair market value upon death. The resulting capital gains are usually taxed at Ontario’s highest marginal tax rate, which exceeds 53.53% (2024).
Here’s an example: If you have an RRSP or RRIF worth $1,000,000, the government could take $535,000 in taxes upon your death. That’s more than half of your hard-earned savings—gone to taxes, not your family. And that’s before factoring in additional costs like probate fees, executor fees, legal fees, and accounting fees. What will be left for your family?
Did you know that some of your assets may even face double taxation? Without proper planning, the total financial burden on your estate could be staggering.
Simple Steps Can Save You Millions
With our Living Estate Plan, you can not only minimize taxes but also protect and even grow your wealth. Our proven strategies help shield your assets, ensuring more of your legacy goes to your loved ones—not the government.
Discover How to Minimize Taxes and Secure Your Legacy
Did you know that without a solid estate plan, taxes and fees in Ontario could claim a significant portion of your wealth?
If you’ve worked hard to build your business, investments, and properties, protecting your legacy for your loved ones is critical. At Strategic Wealth Protection Partners, we specialize in helping high-net-worth individuals in Ontario secure their financial futures.
Our Living Estate Plan is designed to:
- Reduce estate taxes and probate fees.
- Simplify wealth transfer to your loved ones.
- Reflect your values and priorities in every detail.
Your Legacy Matters
With our personalized guidance, we’ll help you navigate options like Living Trusts to protect your assets and ensure your family’s peace of mind. Contact us today to book your Living Estate Plan Consultation and take the first step toward a secure future.
Schedule a Living Estate Plan Consultation
Planning your legacy is about more than numbers—it’s about ensuring your family remembers you and your values are honoured for many years to come.
Estate planning and trusts can feel overwhelming, especially if it’s your first time. That’s why we’re here.
With our simple, 5-Step Living Estate Plan, we make the process easy, helping you create a comprehensive estate plan or trust that protects your assets from taxes and probate fees while preserving your legacy. Tools like The Final Word Journal capture your story, wishes, and essential details like accounts and end-of-life plans, ensuring your family has clarity and comfort.
Take the first step today—schedule a consultation call and give your family the ultimate gift: peace of mind and the assurance they were always your priority.
Read More
If you’re starting your estate planning process, you may find these articles helpful:
- How Much Can You Inherit Without Paying Taxes In Canada?
- What Is the Best Trust to Avoid Probate in Canada?
- Do Trusts Pay Taxes in Canada?
- How to Avoid Estate Tax in Ontario
- How to Avoid Inheritance Tax in Canada
About the Author
RON COOKE, PRESIDENT & FOUNDER OF STRATEGIC WEALTH PROTECTION PARTNERS
With over 30 years in financial services, I’ve seen the challenges families face when a loved one passes—lost assets, unnecessary taxes, and emotional stress. That’s why I created the Living Estate Plan, a comprehensive process to protect assets, eliminate estate and probate fees, and create legacies that are remembered for many years to come.
This plan ensures your family receives not just your wealth, but a meaningful reminder of your care and love. Tools like The Final Word Journal capture your story, wishes, and essential details, offering clarity and comfort during difficult times.
Your final gift should be more than money—it should be peace of mind, cherished memories, and an organized estate.
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Schedule a 30-minute consultation call with Strategic Wealth Protection Partners. Click HERE to schedule a consultation.
