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Seller guide · Ontario
Canada has no inheritance tax, but a house can still trigger capital gains tax twice: once on the owner’s final return, and again when the estate or heir sells. Whether either one costs anything depends on two things: whether it was the owner’s principal residence, and how long it sits before it sells.
By Alex Reid · Updated
The short answer
The CRA treats a person as having sold all their capital property just before death, at fair market value. Nothing is actually sold; it is a calculation on the final (terminal) tax return.
The exception is property left to a spouse or common-law partner (or a qualifying spousal trust). That rolls over without tax, and the gain is deferred until the surviving spouse sells or dies.
So the first question for any inherited house is: what was it worth on the date of death? Get an appraisal or a written market opinion as of that date and keep it. You will need it twice.
If the house was the owner’s principal residence for every year they owned it, the gain up to the date of death is generally not taxed.
It still has to be reported. The executor designates the property on the final return using Schedule 3 and Form T1255. Skipping the designation can cost the exemption.
A family can designate only one home per year. If the owner also had a cottage, only one of them gets the exemption for each year, and the executor picks which one saves more tax.
Then the gain from purchase to the date of death is a capital gain on the final return, and the estate pays the tax before distributing anything.
Only half of a capital gain is added to income (see CRA Guide T4037). The tax then depends on the owner’s other income in their final year.
Whoever ends up with the house, the estate or the heir, starts with a cost equal to the date-of-death value. Only the change from that value to the sale price is taxed.
If the house sells quickly for about what it was worth at death, there is little or no gain. If it sits for years and goes up in value, that increase is taxable unless the heir moves in and makes it their own principal residence.
The value can also go down. A loss on a house that was personal-use property generally can’t be claimed, so a long wait in a falling market is a cost with no tax relief.
Worked example
Mom’s house was worth $700,000 when she died. The estate sells it 10 months later for $715,000. The gain is $15,000, and half of it, $7,500, is taxable income for the estate.
For probate, timeline and steps, see selling an inherited house in Ontario. If the house needs work or is full of belongings, we buy estate homes as-is: see how it works.
Sources
This guide is general information, not legal, tax or financial advice. Private Deals buys homes directly and is not a real estate brokerage. Talk to a lawyer before you sign anything.
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