Capital property other than depreciable property

This page explains how to determine the deemed proceeds for capital property, other than depreciable property. See Depreciable property for the rules for calculating the deemed proceeds for depreciable property. If there is a transfer of farm or fishing property to a child, see Farm or fishing property transferred to a child.

If the deceased owned (or co-owned) property that was their principal residence, there is a deemed disposition of the property on death. For deaths occurring in 2018, a principal residence designation must be made by completing page 2 of Schedule 3, Capital Gains (or Losses) in 2018 and Form T1255, Designation of a Property as a Principal Residence by the Legal Representative of a Deceased Individual. Where the principal residence is transferred to the deceased’s spouse, common-law partner, or testamentary spousal or common-law partner trust (under the conditions described in the next section), the CRA does not require you to make a principal residence designation for the period before death. Instead, the disposition must be reported and the designation may be made by the surviving spouse, common law partner, or the trust at the earlier of the time of actual disposition or death of the surviving spouse. Therefore, a record should be kept of the years for which the deceased individual would have been eligible to make a principal residence designation for the particular property.

For more information on the reporting requirements when there is a disposition of a principal residence, see Chapter 6 of Guide T4037, Capital Gains and Income Tax Folio S1-F3-C2, Principal Residence.

Deceased's deemed proceeds - Transfer to spouse or common-law partner, or testamentary spousal or common-law partner trust

There may be a transfer of capital property (including farm property, or fishing property) from a deceased person who was a resident of Canada immediately before death to a spouse or common-law partner, or a testamentary spousal or common-law partner trust.

For a transfer to a spouse or common-law partner, the deemed proceeds are the same as the property's adjusted cost base right before death, if both of these conditions are met:

  • The spouse or common-law partner was a resident of Canada right before the person's death.
  • The property becomes locked-in for the spouse or common-law partner no later than 36 months after the date of death. If you, as the legal representative of the deceased, need more time to meet this condition, you can make a written request to the director at your tax services office before the end of the 36 month time period.

For a transfer to a testamentary spousal or common-law partner trust, the deemed proceeds are the same as the property's adjusted cost base right before death, if both of these conditions are met:

  • The testamentary spousal or common-law partner trust is resident in Canada right after the property becomes locked-in for this trust.
  • The property becomes locked-in for the testamentary spousal or common-law partner trust no later than 36 months after the date of death. If you need more time to meet this condition, you can make a written request to the director at your tax services office before the end of the 36-month time period.

Where these conditions are met, the deceased will not have a capital gain or loss. This is because the transfer postpones any gain or loss to the date the beneficiary disposes of the property.

Example

A person's will transfers non-depreciable capital property to the spouse or common-law partner, and both of the conditions for transfer to a spouse or common-law partner are met. Right before death, the adjusted cost base of the property was $35,000. Therefore, the deemed proceeds are $35,000. You would not report any capital gain or loss on the deceased's final return.

Tax Tip

You can elect not to have the deemed proceeds equal the adjusted cost base. If you make this choice, the deemed proceeds are equal to the property's fair market value right before death. You have to make this choice when you file the final return for the deceased.

You may want to do this to use a capital gains deduction or a net capital loss on the deceased's Final return. It may be more beneficial to report a capital gain or loss on the final return instead of deferring it to the spouse or common-law partner, or spousal or common-law partner trust.

In this situation, you may be able to make a principal residence designation by reporting the disposition on Schedule 3 and completing Form T1255, in order to claim the principal residence exemption.

Deceased's deemed proceeds - All other transfers
For all other transfers, the deemed proceeds are equal to the property's fair market value right before death.

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