Do You Pay Tax on an Inheritance in BC?

Which Taxes Can Apply When You Inherit Money or Property in BC?

BC does not have an inheritance tax, so you do not personally pay tax just for receiving money or assets. However, this doesn’t mean taxes aren’t a significant factor when inheriting.  

In BC, when someone passes away, the government treats their assets as if they were sold at that moment. This is called a deemed disposition. 

The taxes that can apply when you inherit in BC are income tax, capital gains tax, or tax on registered accounts like RRSPs.

This tax is payable by the estate before anything is passed on to beneficiaries. So, although you aren’t paying personally when you inherit, taxes can significantly reduce your inheritance.

Written By Tiffany Woodfield, Financial Advisor, TEP®, CRPC®, CIM®

Key Insights

• You do not pay inheritance tax in BC simply for receiving money or property.
• Taxes are generally paid by the estate before assets are distributed to beneficiaries.
• Capital gains tax may apply when investments, cottages, or rental properties increase in value.
• RRSPs and RRIFs can create significant tax liabilities when no qualifying rollover applies.
• Estate planning can help reduce taxes and prevent the forced sale of assets.

How Do Inheritance Taxes Work in BC?

What “No Inheritance Tax” in BC Really Means

There is no inheritance tax in BC, so beneficiaries typically do not report inherited assets as income or pay tax on them directly. Instead, any taxes are usually paid by the estate before the assets are distributed, which reduces what beneficiaries ultimately receive.

Income Tax at Death and Deemed Dispositions

When someone dies, the CRA treats their assets as if they were sold at fair market value immediately before death. This is called a “deemed disposition,” and it can trigger income tax even though nothing was actually sold.

Capital Gains

If assets such as investments or real estate have increased in value, the gain is taxed at death. Only a portion of the gain is taxable, but it is still included on the final tax return and can result in a significant tax bill.

Probate Fees

Probate fees are not a tax, but they are still a cost paid to the court to validate a will. In BC, probate fees are based on the value of the estate and can reduce the amount passed on to beneficiaries.

Who Pays the Taxes After Someone Dies?

The estate pays the taxes, not the person receiving the inheritance.

The executor is responsible for filing the final tax return and settling any tax liabilities before distributing assets.

This means the inheritance you receive is usually already “after tax,” even though it may feel like you didn’t pay anything directly.

How Are Inheritable Assets Taxed Upon Death?

High-value assets are often taxed differently depending on the type of asset and how it is owned

Principal Residence

A principal residence is usually exempt from capital gains tax at death if it qualifies properly. 

For many families, this is the largest tax-free asset that passes to the next generation.

Vacation Properties & Investment Properties

Vacation homes and rental properties do not get the same principal residence exemption (PRE). Any increase in value is generally taxed as a capital gain when the owner passes away. Unless you choose to use the PRE for your vacation property instead of your principal home. But you can only use it for one property each year. 

Resource: Revenue Canada Principal Residence Guide

Non-Registered Investments

Stocks, mutual funds, and ETFs are treated as if they were sold at death. If they have grown in value, the gain is taxed on the final return.

RRSPs and RRIFs

RRSPs and RRIFs are typically fully taxed as income when someone dies. Unless they transfer to a spouse or dependent, the full value is added to the final tax return, which can create a large tax bill.

Private Company Shares

Private company shares can trigger capital gains tax when transferred at death due to deemed disposition. If the business has grown significantly, this can result in a substantial tax liability for the estate.

Table: How Assets Are Taxed Upon Death in Canada

Asset Type	Typical Tax Treatment at Death
Principal Residence	Usually exempt from capital gains tax if it qualifies for the principal residence exemption.
Vacation Property	Growth in value may be subject to capital gains tax.
Rental Property	Growth in value may be subject to capital gains tax.
Non-Registered Investments	Treated as sold at death; capital gains may be taxable.
RRSPs and RRIFs	Generally fully taxable as income unless transferred to a qualifying spouse or dependent.
Private Company Shares	May trigger capital gains tax due to the deemed disposition rules.

What Are the Biggest Mistakes to Avoid When Getting a Big Inheritance?

One of the biggest mistakes is assuming the inheritance is completely tax-free without understanding how taxes were already applied. 

Another is poor planning for registered accounts or real estate, which can lead to large, unexpected tax bills. Finally, not getting advice early can lead to missed opportunities to reduce taxes or properly structure assets.

Case Study: How One Family’s Lack of Estate Planning Created Unnecessary Stress and How to Avoid This

Sarah inherited what she believed was a tax-free estate worth $2 million, including a cottage and a large RRSP. 

What she didn’t realize was that her parents’ estate owed a significant tax bill before anything could be distributed. The cottage triggered a large capital gain because it doubled in value over the many years her family owned it. And the RRSP was fully taxed as income. 

There was no cash set aside to pay the tax bill, forcing the executor to sell assets quickly. This created unnecessary stress for everyone involved. 

The estate value had dropped substantially before it reached her.

With better planning, the family could have reduced the tax and avoided a rushed sale of the assets. 

The lesson to learn from Sarah’s family is that proper planning involves looking at exactly what will happen when you pass and how the estate will need to be settled. Then create a plan that will avoid the rushed sale of valuable assets. 

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About the Author

Resources:

• Taxation of Estates in British Columbia
• Tips on How to Avoid Estate Tax in Canada