Canada: Opportunities And Pitfalls For Foreign Inheritances And Beneficiaries

Last Updated: July 19 2017
Article by Margaret R. O'Sullivan

Special opportunities may be available where a non-Canadian resident intends to pass assets on death to a Canadian resident.

Two common scenarios include:

  • Your Canadian-resident client has a parent or other relative who has never lived in Canada and who will be passing significant assets to your client upon death under the relative's will.
  • An expat left Canada at least 18 months ago and has become a non-resident of Canada for tax purposes, but has children or other relatives residing in Canada.

In each situation, there may be an opportunity to minimize, or even eliminate, Canadian taxation of the income on the inheritance, resulting in significant savings to the Canadian beneficiary over time.

Foreign inheritances

Under Canadian tax rules, if your client inherits a gift of capital outright under a will, no tax is generally paid on the inheritance itself. But if your client is a Canadian resident for tax purposes, the ongoing income on the inheritance is taxable to them. Likewise, if the gift is by way of a trust resident in Canada, the trust will pay tax on the income (or the beneficiary will, if the trust elects to allocate the income to the beneficiary).

With proper planning, distributions from a trust will generally be considered to be tax-free if:

  • the trust is created upon death (testamentary);
  • the testator is a non-resident of Canada who either never lived in Canada, or has not been considered resident in Canada for at least 18 months at the time of his or her death;
  • the testamentary trust is not a Canadian tax resident; and
  • only capital is paid out to the Canadian beneficiary, not income.

Further, income from such a trust under a will will not be taxable in Canada if it is not paid out to a Canadian resident beneficiary.

As a result, it is possible to set up the trust in a low-tax jurisdiction outside Canada, where there may be little or no tax payable on the ongoing income. The terms of the trust will generally require that accumulated unpaid income becomes capital of the trust.

In the appropriate circumstances, this planning idea may be worth considering, particularly where large sums are involved. A corporate trustee and/or persons resident in the low-tax jurisdiction would usually be named as trustees of the trust. The costs of maintaining a trust, including any trustee and administration fees, are relevant when considering whether this planning meets a client's objectives. However, where it does, it can provide substantial tax savings over time.

Foreign beneficiaries

Conversely, there are many tax considerations that arise when a Canadian client's estate has foreign beneficiaries.

Upon the client's death, tax may be levied on the estate (or on the deceased) or, less commonly, on the beneficiary. Tax is based on such things as citizenship, domicile, residency and the location of inherited assets.

Most jurisdictions impose some type of death, succession or estate tax. Alternatively, a small number of jurisdictions (including Canada, Australia, New Zealand and Denmark) impose a capital gains tax on death to the gain in the value of the deceased's property. Deferral opportunities for this tax may exist, such as a spousal transfer.

A mobile client, therefore, may face double or even triple taxation, including taxation by multiple jurisdictions and/or in the hands of different taxpayers. Few tax treaties provide for relief against double taxation on death with respect to gift or inheritance taxes, although unilateral measures may consider such double taxation.

Notable exceptions are the Canada-U.S. and Canada-France tax treaties. However, even where there are provisions for relief, the situation may be complicated if the identities of the taxpayers and/or timing of the tax liabilities differ between jurisdictions.

For example, there is a credit mechanism available under the Canada-U.S. tax treaty to avoid capital gains tax and estate tax being paid on the same assets. It is important they arise at the same taxpayer level; otherwise, there can be a mismatch. If, for example, there is a trust, the U.S. rules, depending on the type of trust, may levy estate tax at the level of the deceased settlor of the trust. But the Canadian rules might treat the trust as a separate entity, with the result that capital gains will not arise on the settlor's death against which the U.S. estate tax can be credited.

Advisors must understand how foreign taxes can impact the administration of an estate, even one that is purely domestic but has foreign beneficiaries. Certain countries impose an inheritance tax where the beneficiary pays tax based on the value of the inheritance received (see " Selected countries with inheritance taxes").

Most Canadian wills have debt and tax clauses providing that all taxes arising on death are paid by the estate, with the result that all beneficiaries receive the same amount after taxes, regardless of local taxation. This can mean that if among a deceased's beneficiaries there is one living in a country with high inheritance tax rates (e.g., France), the inheritance tax will be paid by the estate and the other beneficiaries will also bear the burden of the inheritance tax.

As a result, advisors should find out whether the testator wants the estate or the beneficiary to bear the burden of inheritance tax. This important step ensures the client's objectives are carried out and avoids family disharmony.

Margaret has been an expert columnist for and Advisor's Edge magazine since 2011. You may read her columns here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Margaret R. O'Sullivan
Similar Articles
Relevancy Powered by MondaqAI
O'Sullivan Estate Lawyers LLP
Shea Nerland Calnan LLP
Stikeman Elliott LLP
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
O'Sullivan Estate Lawyers LLP
Shea Nerland Calnan LLP
Stikeman Elliott LLP
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions