In general, most inheritances and proceeds from life insurance are not taxable.
However in certain cases, when a person dies their heirs are considered to have received their inheritance right before the death. This is called “deemed proceeds of disposition.” Although there was not an actual sale of the deemed proceeds, there can be a capital gain or loss:
- When the proceeds are more than the adjusted cost base, you have a capital gain. In most cases, one half of this gain is taxable.
- If the proceeds are less than the adjusted cost base, you experience a capital loss. One half of the loss is eligible for a capital tax loss.
Use schedule 3 (Capital gains and losses) to determine your taxable capital gain or deductible capital loss.