The CRA explains here how to determine 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.
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 depreciable property (including depreciable farm property or fishing property) to a spouse or common-law partner, or a testamentary spousal or common-law partner trust. For these transfers, you may be able to use a special amount (as explained in the next paragraph) for the deemed proceeds. When you use this special amount, the deceased will not have a capital gain, recapture of capital cost allowance, or a terminal loss. The transfer postpones any gain, recapture, or terminal loss to the date the beneficiary disposes of the property.
The conditions required to use this special amount are the same as those listed for a transfer of capital property to a spouse or common-law partner, or testamentary spousal or common-law partner trust.
The special amount (deemed proceeds) is the lesser of:
- the capital cost of the property for the deceased
- the result of the following calculation:
Capital cost of the property ÷ Capital cost of the property in the same class that had not been disposed of
previously x Undepreciated capital cost of all of the deceased's property in the same class
A woman had 2 trucks that were used in her business. The woman died in July 2019, and the will transferred one truck to her husband. Both of the conditions for transfer to a spouse or common-law partner are met.
You have the following details:
- Undepreciated capital cost of the 2 trucks right before death: $33,500
- Capital cost of transferred truck: $22,500
- Capital cost of the 2 trucks: $50,000
The deceased's deemed proceeds on the transferred truck are the lesser of:
- ($22,500 ÷ $50,000 ) x $33,500 = $15,075
The deemed proceeds are $15,075.
When there is more than one property in the same class, you can choose the order in which the deceased is deemed to have disposed of the properties. When you calculate the special amount, adjust the undepreciated capital cost and the total capital cost of the properties in the class to exclude previous deemed dispositions.
When determining the special amount, you will need to recalculate the capital cost of property in the class when any of the following apply:
- the property was acquired in a non-arm's length transaction
- the property was previously used for something other than gaining or producing income
- the part of a property used for gaining or producing income changed
For more information, contact the CRA at 1-800-959-8281.
You can elect not to use the special amount for the deemed proceeds. 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 claim a capital gains deduction on the final return. It may be more beneficial to report a capital gain, recapture, or terminal loss on the final return instead of deferring it to the spouse or common-law partner, or spousal or common-law partner trust.
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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