Transferring Inherited Funds From Israel to Canada

Picture a daughter in Mississauga who has just learned that her late father, who left Israel in the 1970s, kept a shekel savings account at Bank Leumi in Haifa with the equivalent of about CAD 180,000 in it. She is the sole heir. She assumes the hard part is grief and paperwork, and that once the bank confirms she is entitled, the money will simply land in her Canadian account. Then the bank mentions a succession order she does not have, a 25% tax she has never heard of, and a request for documents that must be translated and apostilled. This is where most Canadian heirs get stuck.

Moving an inheritance from Israel to Canada is not one transaction. It is three separate systems that have to line up: the Israeli probate process that proves you are the heir, the Israeli tax rules that decide whether the bank withholds anything, and the Canadian reporting rules that apply once the money crosses the ocean. Handled in the wrong order, each one can freeze the others. This guide walks through all three from the position of someone sitting in Canada, not in Israel.

If your inheritance also includes real estate rather than only a bank balance, read our companion guide on inheriting Israeli property as a Canadian resident, because the tax mechanics there are very different.

No Bank Will Move a Shekel Without a Succession Order

An Israeli bank cannot legally release a deceased customer's funds to anyone until an Israeli authority confirms who the heirs are. A Canadian grant of probate does not do this on its own. You need an Israeli צו ירושה (succession order) if there was no will, or a צו קיום צוואה (will execution order) if there was one. Both are issued by the Inheritance Registrar (Rasham HaYerushot) at the Ministry of Justice, or by the Family Court when the estate is contested or a party is a minor.

The application can be filed from Canada. Your Israeli lawyer submits it electronically, along with the death certificate, proof of the heirs' identities, and, where a foreign document is involved, an apostille and a certified Hebrew translation. The Registrar publishes notice, waits for objections, and issues the order if none arrive.

In Practice: Under Section 66 of the Succession Law 1965, the Inheritance Registrar issues a succession order once the statutory objection period has passed. The government filing fee is roughly NIS 550 for the application plus about NIS 140 for publication, and an uncontested order typically takes eight to ten weeks from filing. A Canadian death certificate must carry an apostille from the province that issued it before the Registrar will accept it, which is the step most heirs forget.

One practical warning that catches Canadian families off guard: if your father also held assets in Ontario or elsewhere, you may be tempted to run the Israeli process and the Canadian probate at the same time. That is fine, but the Israeli succession order only covers Israeli assets. It does not need your Canadian grant, and your Canadian grant does not substitute for it.

The 25% Question: Israeli Withholding on Money Leaving the Country

Israel abolished its estate and inheritance tax in 1981, so there is no Israeli "death tax" on what you inherit. That surprises people who assume every country taxes inheritances the way the United States or the United Kingdom does. Israel does not.

What Israel does have is a control on money leaving the country. Under Section 170 of the Income Tax Ordinance, a transfer abroad is subject to 25% withholding at source unless the payer can show the transfer is exempt or reduced. Banks apply this rule cautiously, because the bank itself is liable if it wires money out without checking. The good news for heirs: a distribution of an inheritance made under a succession order, within the shares attributed to heirs abroad, is exempt from that withholding. The bad news: the exemption is not automatic. The bank has to be satisfied, on paper, before it opens the transfer.

In Practice: Section 170(a) of the Income Tax Ordinance sets withholding on transfers abroad at 25% for individuals, but inherited principal moved under a succession order to a foreign heir is exempt. To document the exemption your lawyer files Form 2513/2 (a self-declaration) or obtains a withholding certificate (אישור ניכוי מס במקור) from the assessing officer at the Israel Tax Authority. A certificate for a straightforward inheritance usually issues within three to five weeks; on an NIS 600,000 balance, getting it right is the difference between wiring the full sum and having NIS 150,000 held back pending a refund claim.

There is a nuance worth stating plainly. The exemption covers the inheritance itself, meaning the balance as it stood at the date of death. If the account has been sitting for a year or two since your relative died and has earned interest, that interest is Israeli-source income and can be taxed separately, typically at 25% for a non-resident. A careful lawyer separates the two figures so you are not overtaxed on the principal or undertaxed on the interest.

What Canada Wants When the Money Lands

Here is the part Canadian heirs are relieved to hear. Canada has no inheritance tax and no estate tax at the federal or provincial level, and a bequest is not treated as income. When the wire from Israel hits your Canadian account, you do not report it as income on your T1, and the CRA does not tax the gift of the inheritance itself.

Two reporting obligations still apply, and ignoring them is where otherwise honest people run into trouble.

• Form T1135, the Foreign Income Verification Statement. If, at any point in the tax year, the total cost of your "specified foreign property" exceeds CAD 100,000, you must file T1135. This matters during the window when the money is still sitting in Israel in your name. The cost of inherited property for this purpose is its fair market value on the date you inherited it, not what your relative originally deposited. An Israeli account holding the equivalent of CAD 180,000 puts you over the threshold the moment you become the legal heir.
• FINTRAC reporting on the way in. Canadian banks and money service businesses must report incoming electronic funds transfers of CAD 10,000 or more to FINTRAC. This is an anti-money-laundering monitoring rule, not a tax, and it happens automatically. Your job is simply to be ready to prove the source: keep the succession order and a short cover letter explaining the funds are an inheritance, because your Canadian bank's compliance desk may ask before it releases the incoming funds.

Because both countries now share account information under the Common Reporting Standard, the CRA can already see foreign accounts held by Canadian residents. Filing T1135 late carries penalties of CAD 25 per day, up to CAD 2,500 per year, and more where the CRA finds the omission was deliberate. Our guide to Canadian CRA reporting on Israeli bank accounts covers the mechanics in detail.

Currency, Timing, and the Shekel Problem

An inheritance denominated in shekels exposes you to an exchange-rate swing you did not choose. Between the date of death and the date the money actually arrives in Canada, the shekel-to-Canadian-dollar rate can move several percent. On a six-figure sum that is thousands of dollars, in either direction.

You have some control here. Israeli banks convert at their own retail rate, which is rarely the best available. Where the amounts justify it, the funds can be transferred in shekels or in US dollars to a Canadian account and converted through a currency specialist at a tighter spread. Discuss this with your lawyer before the wire is instructed, because once the bank has converted at its counter rate the decision is made.

Timing also interacts with your Canadian tax position. The CRA measures the cost of inherited foreign property in Canadian dollars at the date of inheritance. If the property later gains value in shekel terms or through currency movement, that gain can be a taxable capital gain to you when realized. Keeping a clear record of the fair market value on the date of death, in Canadian dollars, protects you later.

What Often Goes Wrong

Most delays are self-inflicted and preventable. The recurring ones:

• Assuming a Canadian grant of probate is enough for the Israeli bank. It is not; you still need the Israeli order.
• Sending the death certificate without an apostille, so the Inheritance Registrar rejects it.
• Letting a co-heir in Israel or elsewhere handle "their part" separately, which fragments the succession order and slows everyone down.
• Instructing the wire before the withholding position is documented, so the bank withholds 25% by default.

Common Mistake: A Canadian heir asks the Israeli bank to release "just enough for now" before the succession order and withholding certificate are in place. The bank, protecting itself under Section 170 of the Income Tax Ordinance, withholds 25% of the transfer. Recovering that money means filing a refund claim with the Israel Tax Authority, which routinely takes four to eight months and often needs a non-resident tax file opened first. On a NIS 400,000 inheritance, that is NIS 100,000 tied up for the better part of a year for the sake of moving a few weeks early.

Practical Checklist

• Confirm whether your relative left an Israeli will; this determines whether you need a succession order or a will execution order.
• Have the Canadian death certificate and your proof of identity apostilled by the issuing province and translated into Hebrew.
• Appoint an Israeli lawyer under a notarized, apostilled power of attorney so the whole process can run without you flying to Israel.
• Ask the lawyer to separate the date-of-death balance (exempt inheritance) from any post-death interest (taxable) before the transfer.
• Secure the withholding certificate or file the self-declaration before the wire is instructed, never after.
• Record the fair market value of the inheritance in Canadian dollars on the date of death for your CRA file.
• Check whether you crossed the CAD 100,000 threshold for Form T1135 while the funds were still in Israel.

Speak With an Israeli Attorney

Releasing an inheritance from an Israeli bank and moving it to Canada cleanly depends on getting the succession order, the withholding position, and the Canadian reporting to line up in the right sequence. An Israeli attorney can obtain the order, document the withholding exemption with the Israel Tax Authority, and coordinate the transfer so nothing is held back or reported late on either side.

Contact us for a confidential initial consultation.