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Estate Tax in Langley and Surrey: CRA “Death Taxes” Explained for Executors

If you’re an executor dealing with estate tax in Langley and Surrey, you’ve likely encountered the term “death tax.” While Canada doesn’t have a formal inheritance tax like some other countries, the Canada Revenue Agency (CRA) can still collect a significant amount through income tax at the time of death.

Between capital gains, RRSPs/RRIFs, and estate income, the tax bill can shock families who aren’t prepared. This guide explains the rules, deadlines, and practical steps to help protect the estate’s value and avoid common pitfalls.

1) What exactly is the “death tax” in Canada?

In Canada, the “death tax” is really just income tax. When someone passes away, CRA generally treats them as if they sold many assets immediately before death. This is called deemed disposition, and it can trigger capital gains.

The biggest tax triggers

  • Rental properties & second homes: A condo in Willoughby or a vacation cabin can be treated as “sold” at fair market value (FMV).
  • Non-registered investments: Stocks, ETFs, and mutual funds held outside a TFSA or RRSP.
  • Private companies: Shares in a local family business.

Executor tip: The biggest mistake we see is missing the Adjusted Cost Base (ACB). If you can’t prove what the deceased paid for an asset, CRA may assume a lower cost, which can create a much higher tax bill.

2) Your home: the Principal Residence Exemption

For many Fraser Valley families, the home is the largest asset. Often, it’s tax-free due to the Principal Residence Exemption—but it isn’t always automatic.

You may need extra care if the home was:

  • used for business,
  • rented out at any point, or
  • held in a trust or other complex structure.

When in doubt, document how the property was used and keep supporting records.

3) The RRSP & RRIF “surprise”

Many people assume RRSPs pass to children tax-free. In reality, CRA often treats the entire value of an RRSP or RRIF as income in the year of death.

Example: If there is $500,000 in a RRIF, the estate could lose a large portion to the top marginal tax bracket depending on the overall income picture.

The exception: tax-deferred rollover

These accounts can often be transferred on a tax-deferred basis if left to:

  • a surviving spouse/common-law partner, or
  • in certain cases, a dependent child with a disability.

Getting the beneficiary designation and transfer steps right is critical.

4) Understanding the CRA filing deadlines

Executors have a lot on their plate, but missing deadlines can lead to penalties and interest.

Final (Terminal) T1 Return deadlines

  • Death between Jan 1 – Oct 31: Final Return due April 30 of the following year.
  • Death between Nov 1 – Dec 31: Final Return due 6 months after the date of death.

T3 trust (estate) returns

If the estate earns income after death (interest, rent, dividends), you may need a T3 return. These are generally due 90 days after the estate’s year-end.

5) The CRA Clearance Certificate: don’t skip this step

Before distributing money to beneficiaries, executors should strongly consider applying for a CRA Clearance Certificate. This is CRA’s confirmation that taxes are paid (or acceptable arrangements are in place).

Why it matters: If you distribute the estate and CRA later assesses more tax, the executor can be personally liable for the shortfall.

Practical checklist for local executors (Langley & Surrey)

If you’re handling estate tax in Langley and Surrey, this checklist helps keep the process organized:

  • Gather paperwork: Collect all tax slips (T4A, T5, T3) and investment statements.
  • Appraise property: Get FMV for real estate as of the date of death.
  • Check beneficiaries: Confirm who is listed on RRSP, RRIF, TFSA, and insurance policies.
  • Identify optional returns: In some cases, extra returns can split income and reduce total tax.
  • Get professional help: Estate tax is complex; mistakes can cost the family thousands.

Frequently Asked Questions

Is there a BC inheritance tax?

No. BC does not have a separate inheritance tax, though there are probate fees (often described as roughly 1.4% over certain thresholds). Probate fees are separate from CRA income tax.

Can I file the taxes myself?

Some simple estates can be filed without professional help. However, many executors in Langley and Surrey work with a professional to ensure proper filing, avoid missed elections, and explore post-mortem options (such as GRE-related planning where relevant).

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Need help navigating an estate?

If you’re feeling overwhelmed by the paperwork, we’re here to help. Our team assists families in Langley and Surrey with Final T1 Returns, T3 Estate Returns, and CRA Clearance Certificate applications.

For help, start here: https://www.jdtax.net/contact/

Call: 604-533-4214
Email: Greg@jdtax.net
Office: #106 – 20644 Fraser Hwy, Langley B.C

Disclaimer: This article is general information only and not legal or tax advice. Estate tax outcomes depend on the specific facts of the estate.

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