I could end my blog right here, but as my readers know, I tend to write more rather than less, so I will take this subject down one level. Lynne Butler also has a very good blog on this topic and discusses the obscure situation where you may owe income tax on an inheritance.
Where income tax really rears its ugly head in respect of inheritances, is in the taxation of the deceased person. For income tax purposes, a deceased person is deemed to dispose of his or her assets at their fair market value on the date of death. These deemed dispositions can result in an income tax liability for the estate of the deceased, which will reduce the value of the estate and ultimately the inheritance.
Where you have a depreciable asset such as real estate, the deceased may have “recapture” of prior depreciation claimed and a deemed capital gain. However, in cases where the principal residence was the only real estate property of the deceased, there will be no income tax exigible.
Where a deceased person owned multiple real estate properties, such as a home, cottage, vacation property or rental property, the principal residence exemption may be allocated partially to the other properties and thus, the deceased’s principal residence could be partially or wholly taxable.
The deceased's estate may also be liable for probate tax; see my blog on probate taxes for more details.
In the United States there is estate tax that can potentially reduce the amount of an inheritance from a US person or a Canadian person with US situs assets.
So in summary, there are no inheritance taxes in Canada, however, there are several taxes that may affect the ultimate inheritance received.
The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.