How Do I Inherit a House in Canada? Taxes, Title and Your Options in Ontario
Inherited property is given to you by another person, usually a parent or other relative who has passed away. That can make a stressful time even harder as you work out what to do next.
Here is the short answer. Canada has no inheritance tax, so you do not pay tax just for receiving a house. Any increase in the home’s value up to the date of death is dealt with on the deceased person’s final tax return, and the family home is usually covered by the principal residence exemption. In Ontario, the estate may also pay estate administration tax if the will goes through probate. The house then passes to you, either automatically if you owned it jointly or through the estate trustee. After that, you decide whether to keep it, rent it or sell it.
The first thing to consider is what kind of property it is:
- A principal residence, the home the person lived in full-time. Any increase in value is usually tax-free under the principal residence exemption.
- A secondary property, such as a cottage, vacation home or rental. The increase in value is generally taxed as a capital gain on the final tax return, which the estate pays before the property is handed over.
Either way, a transfer to a beneficiary generally has no Ontario land transfer tax, because no money changes hands. There are still registration costs and legal fees, and estate administration tax of $15 for every $1,000 of the estate’s value above $50,000 if probate is needed.
How is an inherited house transferred to you?
If the home was owned jointly with a right of survivorship, such as by spouses, it passes to the surviving owner automatically, and a lawyer registers the change on title. Otherwise, the estate trustee named in the will deals with the house. Once the estate’s debts and taxes are looked after, the trustee either transfers the house into your name or sells it and divides the money. If there is a mortgage, contact the lender early. If the house is sold, the mortgage is paid out on closing, as explained in our guide to mortgage discharge on an Ontario home sale.
What to do after inheriting a home: a checklist
- Talk with your relatives, siblings and anyone else who has an ownership interest. Everyone should understand the options, and you should agree before making any firm plans.
- Contact the home insurer to make sure the home stays fully covered, especially if it will sit empty. Collect any insurance documents you may need.
- Change the locks and remove valuables, especially if you decide to sell. Empty homes are a target for fraud, so read our 5 things to know about title fraud.
- Get a fair market value appraisal as of the date of death. It helps you decide whether to sell, and it is needed for tax purposes.
- Maintain the property. Check in on the home, perhaps weekly, and keep it clean and cared for, including the lawn and garden.
The ultimate decision is whether you keep the home or sell it.
If you decide to keep the home
There is no inheritance tax in Canada. However, you will take over property taxes, insurance and, in most cases, mortgage payments, along with any repairs. If you move in, it can become your principal residence. If you rent it out, the rental income is taxable and it affects capital gains when you sell, so speak with an accountant first.
If you decide to sell the home
If you sell, capital gains tax generally applies only to any increase in value between the date of death and the sale, unless the home became your principal residence in the meantime. You will also need to plan for real estate commission and legal fees. Our guide on how to navigate a home sale closing walks through the steps.
Getting Help With an Inherited Home
If you are torn between keeping and selling, or your family disagrees on what to do, consider talking to a real estate lawyer. A lawyer can help with transferring title, selling the property, questions about the will and resolving a family dispute over the home.
Inherited a home in Ontario? RealEstateLawyers.ca LLP helps families across Ontario transfer and sell inherited property. Learn about our transfer of ownership services and wills and probate services.
Frequently Asked Questions
Is there inheritance tax in Canada? No. Taxes are settled by the estate before you receive the house, through the final tax return and, in Ontario, estate administration tax if probate is needed.
Do I pay land transfer tax on an inherited house in Ontario? Generally no, because the transfer to a beneficiary is not a sale.
This article provides general information only and is not legal or tax advice. For advice about an inherited property, speak with a lawyer and an accountant.
