What actually gets taxed, and what doesn't
There's no separate "inheritance tax" in Canada the way some other countries have one. Instead, the tax event happens at the deemed disposition — the CRA treats the deceased as having sold their assets, including real estate, at fair market value right before death. If the property was the deceased's principal residence for the years they owned it, the principal residence exemption can generally shelter some or all of the resulting gain from tax.
A property that wasn't the deceased's principal residence — a rental, a cottage, or a second home — doesn't get that exemption, which means the difference between its fair market value at death and its original cost can be a taxable capital gain reported on the deceased's final tax return.
Why the value at the date of death matters so much
Getting an accurate valuation of the house as of the date of death is one of the most important things an estate can do, because that value becomes the new cost base for the beneficiaries going forward. If the house is later sold by the estate or the beneficiaries for close to that value, there may be little or no additional gain to report on that later sale — but only if the date-of-death value was properly documented at the time, not estimated after the fact.
This is genuinely one of those areas where a professional matters more than a guess — an accountant experienced in estate returns can confirm what applies to the specific situation, including any available elections or reporting requirements.