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HMRC internal manual

Inheritance Tax Manual

Liabilities: investigating liabilities: Canadian income tax

Under Canadian law, the estate of an individual is deemed to have been disposed of immediately before their death. Income tax is charged on any resulting gains. If, under the (Income Tax) Double Taxation Agreement the deceased was resident in Canada, the charge applies to all property wherever it is situated. But if the deceased was resident in the UK the charge applies only to immovable property in Canada and to certain business property.

Although, strictly, the income tax charge does not arise until the person has died, you may treat the income tax charged as a result of a death in same way as any other income tax liability which the deceased had incurred prior to death and allow the tax as a deduction against the value of the property in Canada.

Any case in which the Canadian income exceeds the amount of the property in Canada and the taxpayer seeks to deduct the excess against UK assets should be referred to Technical.