Inheriting or receiving a gift from India as a Canadian resident

The reassuring news holds on both sides. India has no inheritance tax and no gift tax, and the income-tax law exempts anything you receive under a will, by inheritance, or as a gift from a relative, under the proviso to Section 56(2)(x), so the Indian receipt is tax-free. Canada is the same in principle: it has no inheritance tax, no estate tax and no gift tax, so receiving money or property from India is not taxable income to you as a Canadian resident. What Canada does have is a deemed disposition on death, but that falls on the person who died, on their final return, not on you as the heir, and for someone who died resident in India, their Indian assets are outside Canadian tax entirely.

So you inherit without a tax on the receipt in either country. And because India charges no death tax, there is no Indian tax bill for you to worry about crediting anywhere. The tax question, such as it is, only arises later, when you sell, and here Canada is unusually kind.

The generous part is how Canada sets your cost for a future sale. When you inherit an asset, your cost for capital gains purposes is stepped up to its fair market value at the date of death. So if you later sell the inherited Indian property, Canada taxes only the gain from that death-date value onward, not from the low price your parent may have paid decades ago. This is worth appreciating, because it is the opposite of Australia, which makes you carry over the deceased's original cost and can leave a large latent gain. In Canada, the slate is effectively reset to the value when you inherited.

The one obligation to keep on your radar is reporting. Under Form T1135, if the total cost of your specified foreign property is more than 100,000 Canadian dollars at any point in the year, you have to file the form with your return, and an inherited Indian property or share portfolio, counted at its value when you received it, can easily cross that line. It is a reporting form, not a tax, but the penalties for missing it are steep, so it matters. And while you hold the inherited asset, any Indian rent or income it earns is taxable to you in Canada, with a credit for the Indian tax deducted. There is no Canada-India inheritance treaty, but none is needed, because neither country taxes the inheritance. Our role is the Indian end: the legal heir paperwork, a valuation of the Indian asset at the date of death, which you will want for both the step-up and the T1135, a certificate confirming no Indian death tax, and repatriation of the funds to you.