Principal Issues: Whether a monetary inheritance from a deceased relative residing in a foreign country is taxable under the Income Tax Act?
Position: If the money is received in satisfaction of a capital interest in the estate, the taxpayer will not generally pay tax on that amount of money.
Reasons: The estate is generally a personal trust. The capital gain will be computed using an adjusted cost base equal to the amount of money received.
XXXXXXXXXX 2004-010514 Sylvie Labarre, CA January 25, 2006
Dear Madam:
Re: Deceased Relative in a Foreign Country
This is in reply to your e-mail of November 25, 2004 wherein you requested an interpretation on whether a monetary inheritance from a deceased relative residing in a foreign country is taxable under the Income Tax Act (the "Act"). For the purposes of this letter, we assumed that the deceased never resided in Canada and that the executors or liquidators of the estate are not residents of Canada.
For the purposes of the Act, the estate of a deceased is a trust in which an individual may have a capital interest (a right to the capital of the estate) and/or an income interest (a right to the income of the estate). An estate generally qualifies as a personal trust under the Act. An individual who receives money from a personal trust in satisfaction of his/her capital interest in the trust will not pay tax on that amount of money. However, where such an amount is paid in satisfaction of his/her entitlement to the income of the estate for that year, the individual would be taxable on that amount of money pursuant to subsection 104(13) of the Act.
Furthermore, in a particular situation, we would have to review whether an amount has to be included in income pursuant to the proposed rules on foreign investment entities.
We trust the above has been of some assistance and we regret the delay in responding..
Yours truly,
Alain Godin, Manager
for Director
International and Trusts Division
Income Tax Rulings Directorate
Policy and Planning Branch