Philippines and Canada inheritance: deemed disposition, estate tax and the RA 9225 land question

Filipino-Canadians face three simultaneous tax events at death — Canadian deemed disposition, Philippine estate tax at 6%, and RRSP/RRIF tax for non-dependant heirs — plus a constitutional ban on foreign nationals owning Philippine land. RA 9225 dual citizenship is the key planning tool. No bilateral treaty exists.

The core issues at a glance

• Canada: deemed disposition taxes capital gains on the terminal return within months of death
• Philippines: estate tax at 6% flat rate on net estate above PHP 5 million (TRAIN Law, 2018) — BIR clearance mandatory before any asset can transfer
• Foreign land ownership: the Philippine Constitution prohibits foreign nationals from owning land — RA 9225 dual citizenship is the solution
• RRSPs/RRIFs: up to 25% withholding for Philippine-resident non-dependant beneficiaries
• No bilateral estate treaty between Canada and the Philippines

Principle 01 — Canadian deemed disposition: Philippine assets taxed on the terminal return

When a Canadian tax resident dies, ITA s.70(5) deems all capital property sold at fair market value on the date of death — including Philippine assets: Philippine real property (to the extent held through permissible structures), Philippine shares, and investment accounts.

The terminal return tax is payable within months of death. The Philippine BIR clearance process needed to transfer any Philippine asset typically takes several months to a year. The Canadian tax falls due before the Philippine process is complete, and long before any BIR clearance allows asset distribution.

Principle 02 — Philippine estate tax: 6% flat, BIR Certificate mandatory within one year

For a Canadian-domiciled deceased (non-resident alien to the Philippines), the 6% applies to Philippine-situs assets only. For an RA 9225 dual citizen who was Philippine-resident at death, the worldwide estate is in scope.

Principle 03 — The land ownership ban and RA 9225

The Philippine Constitution (Art. XII §7) prohibits foreign nationals from owning Philippine land. A Canadian heir who is not also a Filipino citizen cannot hold title to inherited Philippine real estate — they must sell, typically under time pressure and at below-market value.

RA 9225 (Citizenship Retention and Re-acquisition Act, 2003) allows former Filipino nationals who naturalised as Canadians to reacquire Philippine citizenship without losing Canadian citizenship. RA 9225 dual citizenship restores the constitutional right to own Philippine land — eliminating the forced sale requirement entirely. For Filipino-Canadian families with Philippine real estate, confirming which adult children have or can obtain RA 9225 dual citizenship is one of the most concrete and impactful planning steps available.

Principle 04 — RRSPs and withholding tax for Philippine-resident beneficiaries

RRSP and RRIF death benefits paid to non-resident beneficiaries are subject to Canadian non-resident withholding tax. For Philippine-resident beneficiaries, the Canada-Philippines income tax treaty reduces the withholding rate on certain payments. However, Philippine-resident adult children who are not financially dependent on the deceased are not eligible for the spousal or dependent rollover, and the withholding tax is in addition to any Philippine-side tax treatment of the received funds. Confirm current withholding rates with a Canadian tax specialist.

Principle 05 — Philippine compulsory heirship

Philippine civil law (Civil Code Art. 887) reserves 50% of the hereditary estate for legitimate children (the legitime). A will that attempts to distribute Philippine assets contrary to this — for example, leaving everything to a spouse at the exclusion of children — will be partially unenforceable in Philippine probate proceedings. This applies to Philippine-situs assets regardless of the deceased’s nationality or where the will was drafted.