IHTM28102 - 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.

In a press release dated 1 August 1978, the Board announced that, by concession

• IHTA84/S5 (3) will be treated as applying to income tax in Canada imposed on a deemed disposal immediately before death even though the liability may not in strictness have arisen until the person had died
• where Inheritance Tax (IHT) is chargeable on a person's world-wide estate, and income tax in Canada is charged on deemed gains which are attributable to property forming part of that estate, the Canadian tax will be allowed as a deduction in arriving at the value of the estate for IHT purposes, and
• Canadian tax will normally be treated as reducing the value of property situated outside the UK whether that property is liable to IHT or not. But if the Canadian tax is more than the value of that property the excess will be set off against the value of the UK property.

Any case in which IHT is not chargeable on the deceased's world-wide estate (for example, because the deceased was not domiciled in the UK) but a deduction is claimed for Canadian income tax on a deemed disposal immediately before death should be referred to Technical.