No, passing assets on to your children doesn’t make the tax disappear.
It’s a common belief: by simply giving your assets to your children, you can avoid paying taxes at death.
Unfortunately, this belief is false in most cases. In Canada, it’s not the transfer that triggers the tax, but the death itself.
And even if your children inherit your assets, the tax must be paid before they take possession sometimes with serious consequences if no planning has been done.
1. The tax at death is not an inheritance tax — it’s a “deemed disposition.”
Unlike other countries such as the United States or France, Canada does not directly tax inheritances.
However, it applies a principle called a *deemed disposition*: at the time of death, you are considered to have sold all your assets at their fair market value — even if you didn’t actually sell them.
This triggers tax on:
-
capital gains (secondary residence, cottage, non-registered investments, business);
-
RRSPs or RRIFs (100% taxable unless transferred to the spouse);
-
stocks, ETFs, bonds, mutual funds, rental properties, etc.
Your heirs receive what’s left… after tax.
2. Giving assets to your children doesn’t make the tax disappear
Even if you write a will stating, “Everything goes to my children,” the Canada Revenue Agency (CRA) will still apply the deemed disposition at the time of death.
Example:
-
You own a cottage purchased for $100,000 in 1995 that is now worth $400,000.
-
At death, you’re deemed to have sold it for $400,000.
-
Capital gain of $300,000, 50% taxable → $150,000 added to your final income.
-
If your marginal tax rate is 45%, that represents about $67,500 in taxes owed.
It doesn’t matter if your children inherit the cottage through your will the tax must be paid first.
RRSPs and RRIFs are 100% taxable at death, unless:
- they are transferred to a surviving spouse, or
- to a financially dependent child due to a disability.
Otherwise, the account balance is added to your final income.
An RRSP worth $250,000 can easily generate $100,000 in taxes at death.
The principal residence generally benefits from a full capital gains exemption.
However:
- If you own two properties (a house and a cottage), only one qualifies for the exemption.
- Other assets (investments, rental properties, businesses) are not exempt.
This is why proactive estate planning is so important, especially if you intend to pass on complex assets to your children (e.g., real estate, a corporation, large RRSPs).
If you own a cottage, a rental property, or significant investments but have no cash on hand, your heirs may be forced to sell those assets just to pay the tax.
This can lead to:
-
the loss of a family property;
-
a rushed sale at a bad price;
-
conflicts between siblings.
A well-structured life insurance policy can be used to pay the tax without touching the assets.
It’s a very common estate planning solution in Quebec.
Without a will, it’s the law (the Civil Code of Québec) that determines how your assets are distributed, which can:
-
exclude a common-law spouse;
-
force joint ownership among children;
-
complicate the sale or transfer of assets;
-
delay tax payments and accumulate interest.
Transferring your assets to your children doesn’t spare you from taxes at death.
The taxman comes before your heirs.
And if you haven’t planned for liquidity (through insurance or a tax strategy), your children will foot the bill — sometimes reluctantly.
A solid estate plan, an up-to-date will, and tools such as life insurance or an estate freeze can help minimize or smooth out the tax impact.
But ignoring the tax means guaranteeing it.
-
Canada Revenue Agency (CRA), Tax on Property at Death, 2024
-
Revenu Québec, Income Tax Return for a Deceased Person
-
Retraite Québec, Transfer of Registered Plans at Death, 2023
-
IQPF, Estate Planning – Professional’s Guide, 2023
-
Éducaloi, Settling an Estate in Québec, 2024
