Foreign inheritance be a complicated situation, so it is advisable to consult with a foreign tax expert to ensure that you have fulfilled all of the relevant requirements from the government of Canada and the Canada Revenue Agency. There are several tax implications involved with inheriting foreign property. It is important to consider the type of foreign investment you are inheriting so you can properly address its tax implications.
Type of Foreign Investments
The first thing you need to consider is the type of foreign property that you have inherited.
- Are you inheriting money, investments or real estate?
- Is it a one-time inheritance or an income stream, such as a pension?
If the money was transferred directly to you, it is the simplest form of inheritance. However, if you have inherited the foreign property from a deceased foreign relative’s foreign estate, you need to complete and submit Form T1142.
T1142: Information Return in Respect of Distributions From and Indebtedness to a Non-Resident Trust
If you are a Canadian resident who is inheriting foreign property, you are required to complete and file Form T1142.
In many cases, you are required to pay taxes in the foreign jurisdiction, so you only end up receiving a non-taxable capital payment. According to the CRA, Form 1142 must be filed if you are a Canadian resident with a non-resident trust and you receive a distribution from a trust or you are in debt to a trust. This type of trust stays as a non-resident trust for other tax purposes.
The CRA says that you must report two basic things:
- The identification of the trust (its name and the names of the trustees)
- The distribution amount and the indebtedness owed to the trust (if applicable).
If you are required to file Form T1142, you must do so on the same day as when you file your income tax return.
Foreign Real Estate
The tax implication of inheriting foreign real estate differs depending on whether or not you decide to keep this type of property. The tax implications also depend on the value of the foreign real estate when you inherit it. It is recommended that you request a property appraisal when you inherit the foreign real estate to confirm its value.
Canadians have to pay income tax on the sale and rental of foreign real estate
- If you decide to keep the foreign real estate for your own personal use, you are not required to pay any Canadian income tax on the property.
- If you decide to rent out the premises, you will be subject to Canadian income tax on the profits.
- Similarly, if you sell the property in the future, you may be subject to capital gains.
For further details, see our TurboTax Tips on Declaring Inherited Overseas Property
TurboTax has been serving Canadians since 1993. It is the #1 selling tax preparation software across the country. We have a variety of product options to serve every individual’s needs. Recently added a LIVE service to enable our customers to have access to tax experts at the tip of your fingers. Go ahead and give it a try! Easy to use with a choice of support options to assist you with all your taxation needs.