Canada Has No Inheritance Tax? The 'Probate Fee' Trap That Costs Your Heirs $30,000

Canada Has No Inheritance Tax?

One of the most common myths in Canadian finance is: "We don't have an inheritance tax like the US or UK."

While technically true (there is no federal "Inheritance Tax"), the provincial governments have a sneaky substitute called the Estate Administration Tax, commonly known as Probate Fees.

It is not a tax on the person; it is a tax on the process. And if you don't plan for it, your heirs could be writing a massive check to the government before they see a dime of their inheritance.

The 1.5% "Hidden" Tax

When you die, your executor usually cannot touch your bank accounts or sell your house until the court validates your will. This process is called "Probate."

In provinces like Ontario and BC, the government charges roughly 1.5% of the total value of the estate assets that go through probate (after the first $50,000 exemption in Ontario).

❌ The Cost of Doing Nothing

Your Assets:

  • Toronto House: $1,500,000
  • Savings & Investments: $500,000
  • Total Estate: $2,000,000

The Probate Bill: approx. $29,250 - $30,000 (Cash due immediately).

Your kids might have to sell assets or take out a high-interest loan just to pay this fee to access the inheritance. (Note: This is separate from the "Deemed Disposition" income tax on capital gains).

Strategy 1: Named Beneficiaries (The Easy Fix)

Assets that have a "Named Beneficiary" bypass the estate completely. They go directly to the person, skipping the probate process and the 1.5% tax.

  • RRSP / RRIF / TFSA: Always name a specific person (spouse or child), not "Estate."
  • Life Insurance: The death benefit is tax-free and probate-free if a beneficiary is named.

Result: If that $500,000 in savings was in a TFSA with a named beneficiary, you just saved $7,500 in fees instantly.

Strategy 2: Joint Ownership with Right of Survivorship (JTWROS)

This is commonly used by spouses. If you own your home as "Joint Tenants," when one partner dies, the property automatically belongs to the survivor. It does not go through the will, so Probate is $0.

⚠️ Critical Warning for Children: Be very careful adding adult children to your house title. Not only does it expose your home to their creditors and divorce settlements, but it can also trigger immediate Capital Gains Tax and complicate Principal Residence Exemptions. Always talk to a lawyer first.

Strategy 3: Multiple Wills (The Business Owner's Secret)

If you own a private corporation in Ontario or BC, this is mandatory.

You can create two wills:

  1. Primary Will: Covers assets that need probate (House, Bank Accounts).
  2. Secondary Will (Corporate Will): Covers assets that usually don't require probate (Shares of your private company).

Why? The court allows you to probate only the Primary Will. Your $5 million business in the Secondary Will passes to your heirs without paying the 1.5% fee.

Savings: On a $5M business, a Secondary Will saves you $75,000 in fees for a legal cost of maybe $1,000-$2,000.

Conclusion

Probate fees are a "voluntary tax." You only pay them if you fail to plan.

Don't let the government be your biggest beneficiary. Check your RRSP/TFSA designations today, and if you own a business, call a lawyer to draft a Secondary Will immediately.

Disclaimer: This article is for informational purposes only. Estate laws and probate rates vary by province (e.g., Quebec operates differently). This article focuses on Probate Fees, not Income Taxes (Capital Gains) triggered at death. Always consult an Estate Lawyer and Accountant to build a comprehensive estate plan.