A wire lands from a solicitor in Manchester or a notary in Lahore, and the first instinct is to look for the line on the T1 that captures it. There is no such line. An inheritance from outside Canada is not income, so you will not owe tax on the receipt either. There are, however, forms you may now have to file, and a cost base you should nail down today rather than in five years.
Key Takeaways
- Receiving an inheritance from overseas creates no Canadian income and no filing on its own.
- Whatever the deceased’s country charged was settled by the executor before you were paid.
- Form T1142 usually does not apply to a genuine estate, but it does apply to the trust that outlives it.
- Form T1135 kicks in once your specified foreign holdings pass $100,000 of cost.
- Your cost base is market value on the day you acquire the asset, so document it now.
Is There a Foreign Inheritance Tax in Canada?
No. Canada does not impose inheritance or estate taxes on you. Parliament repealed the federal gift and estate tax in 1972 and replaced it with capital gains taxation, and no province levies a succession duty today. Nothing in the Income Tax Act (ITA) brings a bequest into income under section 3, so money received from an inheritance never shows as income on your tax return.
Most of the confusion travels in from other countries’ rules. The United States levies a federal estate tax on large estates, the United Kingdom charges inheritance duty, and several European countries tax the heir directly. Canadian tax laws reach the asset afterwards instead, never the receipt. The general Canadian treatment of transfers, including gifts made during someone’s lifetime, is covered in our guide to gift tax in Canada.
Where Estate Tax Gets Paid: the Foreign Estate
The deceased’s jurisdiction takes its share first. The estate pays tax where the deceased lived, and the executor settles that estate tax bill out of the assets before a beneficiary sees anything. The sum arriving in your account is already net of it, so the tax burden falls abroad rather than on you. The executor also files the deceased’s final tax return in that country.
Tax in the foreign country is the executor’s problem, not yours. Canada neither adds to that nor refunds it. There is also no Canadian probate exposure on an overseas estate: Ontario’s Estate Administration Tax of $15 per $1,000 above the first $50,000 applies only where an estate is probated in Ontario. It reaches an overseas estate only if the deceased happened to hold Ontario assets requiring a local grant.
Tax Implications When a Foreign Inheritance Becomes Taxable in Canada
Understanding the tax implications starts here: a foreign inheritance in Canada is taxed on what happens after the money is yours. The tax issues show up in three places:
- Income the asset earns. Interest, dividends and rent from the moment you own it are ordinary income on your return.
- Growth after you receive it. Under ITA 69(1)(c) you are deemed to acquire inherited property at fair market value at the time of inheritance for tax purposes, so only the movement after that date is yours to report. Capital gains tax applies to that growth alone.
- Currency. Convert to Canadian dollars at the rate on the day you receive the funds. Later swings when you convert are capital gains, though ITA 39(1.1) exempts the first $200 of net foreign exchange gains each year for individuals.
A worked figure helps. Ravi inherits €200,000 from his mother’s estate in Portugal in March, when the rate is 1.47, giving him a Canadian cost of $294,000. He leaves it in a Lisbon account earning 3%. The interest is taxable here from day one. When he finally converts two years later at 1.52, the $10,000 of currency movement is a capital gain, and $200 of it is exempt.
Reporting a Foreign Inheritance to the Canada Revenue Agency
Two forms carry your reporting tax obligations here, and one of them almost certainly does not apply to you.
Form T1142 covers distributions from a non-resident trust. Its enabling provision, subsection 233.6(1), expressly carves out “an estate that arose on and as a consequence of the death of an individual.” So a straightforward bequest paid out by an executor abroad is outside the form entirely.
The carve-out has an expiry date that most people never hear about. At the 2023 STEP Canada Roundtable, CRA confirmed that the exemption runs during the period of administration, and that an estate is considered fully administered once its assets have been distributed and any clearance certificate has been requested. Where a will leaves assets in a continuing non-resident testamentary trust rather than paying them out, that foreign trust is no longer the exempt estate. From then on, a Canadian beneficiary must file T1142 for every year a distribution is received. Inheriting “an income for life” instead of a lump sum quietly converts a no-form situation into an annual filing obligation.
Meanwhile, the arrival itself is visible. Since January 2015, banks, credit unions and money service businesses have reported international electronic funds transfers of $10,000 or more to CRA. In our practice representing clients under audit, an unexplained six-figure deposit is one of the more reliable ways to attract a query about unreported income, and the defence is entirely documentary. Keep the will, the death certificate, the executor’s distribution statement and the estate accounts in one file. Produce those and the question closes in a single letter; produce nothing and it becomes an audit you have to defend.
Form T1135 and the Foreign Property You Now Own
This is where an inheritance actually creates work. You must file Form T1135 for any year in which the total cost of your specified foreign holdings exceeded $100,000 Canadian at any point. Inherited assets enter at their market value on the day you acquired them, so a single bequest can carry you over the line in one step.
| Reportable | Not reportable |
|---|---|
| Foreign bank and brokerage accounts | Property used exclusively in an active business |
| Shares of non-resident companies, even held through a Canadian broker | Personal-use property, such as a villa you use yourself and never rent |
| Property abroad held to earn rent | Assets inside an RRSP, RRIF or TFSA |
| Debts owed to you by non-residents | Personal effects and household goods |
Between $100,000 and $250,000 of cost you may use the simplified reporting method. Above $250,000 the detailed table is mandatory, property by property and country by country, and the same requirements apply whether the assets were bought or inherited. Late filing runs $25 a day to a $2,500 maximum, and where the failure is knowing or grossly negligent it climbs to $500 a month for up to 24 months. The Foreign Income Verification Statement page sets out the current thresholds.
One practical consequence follows from the “at any time in the year” wording. Repatriating an inheritance promptly, rather than parking it offshore for eighteen months, can keep you under the threshold entirely. Leaving it abroad is a decision to file, so make it deliberately. Additional tax considerations follow whenever the asset stays abroad and keeps earning.
Capital Gains Tax on Inherited Foreign Real Estate
An inherited house or apartment carries a cost base equal to its market value when you acquired it, translated into Canadian dollars at that day’s rate. Both halves of that sentence matter, because a sale years later is measured in Canadian dollars against a Canadian-dollar cost. Only growth after that date is subject to capital gains tax.
Get a written valuation of foreign assets at the date of death, from a local appraiser, in local currency, dated. Reconstructing a 2019 value in 2029 from listing archives is exactly the kind of evidence CRA discounts, and the difference lands in your taxable gain. Half of the eventual gain is included in income, and the mechanics follow the ordinary rules set out in our guide to capital gains in Canada.
A quieter point: the principal residence exemption is not restricted to homes in Canada. A property outside the country can qualify for the years you ordinarily inhabit it, which occasionally matters for someone who inherits a family home and then lives in it for part of each year.
Claiming a Foreign Tax Credit on Estate Taxes You Paid
Expectations here are usually too high. You may be able to claim a foreign tax credit under ITA 126 for foreign income or profits tax you paid on income you actually reported in Canada. Estate duty or succession tax paid by the executor is neither your tax nor tax on your income, so foreign taxes paid at that level generally support no credit at all.
Where the credit does earn its keep is afterwards: withholding on rent from the inherited property, or tax on the gain the foreign country charges when you sell it. Even then the relief is capped at the Canadian tax on that same foreign income, so paying 35% abroad on income Canada taxes at 30% leaves the 5% difference with the other treasury.
A cross-border inheritance rewards planning on both sides, and the Canadian side is the half you can still control. Consult with tax advisers in the other country too, since a local tax expert sees the estate filings you never will. Our estate planning team works with families on how inherited assets should be held once they arrive here.
Frequently Asked Questions
Do Canadians pay tax on foreign inheritance?
Not on the receipt. There is no tax on a foreign inheritance itself, whatever its size or source, so the money arrives tax-free in Canada. You are taxed only on what the assets earn after you own them, and on any gain when you later sell them.
How do Canadian inheritance tax laws work?
They tax the estate, not the heir. A deceased Canadian is treated as having sold everything at fair market value, and any tax is owed on the resulting gains before the estate is distributed. For an estate abroad, that step happens under the estate tax rules of the other country instead.
How do cross-border inheritance tax rules work between Canada and other countries?
Each country taxes its own side. The other country charges whatever estate or succession duty its law imposes, and Canada taxes only the income and gains arising once you own the asset. A tax treaty helps only in narrow cases, so cross-border tax advice on both sides usually costs less than fixing the filings later.
Are there any inheritance tax exemptions?
There is nothing to exempt, because no inheritance tax applies here in the first place. The exemptions that matter arrive later and attach to the asset, such as the principal residence exemption and the $200 annual foreign exchange threshold. Understand the tax that follows ownership and the planning becomes straightforward.
Do I have to report a foreign inheritance to the CRA?
The inheritance is not reported as income. Reporting is triggered separately, by Form T1135 once your foreign holdings pass $100,000 of cost, and by Form T1142 where the money comes from a continuing non-resident trust rather than an estate under administration.
What should I do if I inherit money from another country?
Document the entitlement before you spend anything. Keep the will, the death certificate and the executor’s statement, obtain a dated valuation of any property, and record the exchange rate on the day funds arrive. Then check whether your foreign holdings now cross the T1135 threshold.
Does an inheritance count as income in Canada?
No. Section 3 of the ITA defines income by source, and a bequest is not one of them. That is why there is no line on the T1 for it and no slip issued to you.
How much foreign property can I own before I must file T1135?
The threshold is $100,000 in total cost, measured at any time during the year rather than at year end. Personal-use property, such as a vacation home you never rent out, is excluded from the calculation.
Do I pay tax when I sell inherited property abroad?
Yes. You pay capital gains tax on growth measured from market value at the date you inherited it, converted to Canadian dollars. Half of that gain is subject to tax at your marginal rate. Tax the other country charges on the same sale may support a credit against the Canadian amount.
The Bottom Line
Receiving an inheritance from abroad is a documentation exercise far more than a tax one, and the tax implications that do exist arrive later rather than on arrival day. Managed properly, it creates no tax liability here at all, because the potential tax sits in the future rather than the present.
- The bequest is not income, and it is never reported on your Canadian tax return.
- Fix the cost base with a dated valuation and the exchange rate on the day you acquired it.
- Check T1135 the first December after the money arrives, not the following April.
- Watch for a continuing trust abroad, which puts you into annual T1142 filing.
Cross-border estates rarely look the way the family describes them, and the difference between an estate and a trust changes your filings entirely. Treat the above as a map rather than a conclusion about your own situation. Our personal tax team handles the Canadian reporting side of inherited assets, and you can get in touch once you know what you are receiving.
