Transfers of capital property

Special rules may apply to transfers of land, buildings or other capital property.

Transfers of property to your spouse or common-law partner or to a trust for your spouse or common-law partner

You generally do not have a capital gain or loss if you give capital property to your spouse or common-law partner, a spousal or common-law partner trust, a joint spousal or common-law partner trust, or an alter ego trust. For definitions of these trusts, see T4013, T3 Trust Guide.

At the time you give the gift, depending on the type of property you give, you are considered to receive an amount equal to one of the following:

• the undepreciated capital cost for depreciable property
• the adjusted cost base for other types of capital property

Your spouse or common-law partner, or the trust for your spouse or common-law partner or for yourself, is considered to have bought the capital property for the same amount that you are considered to have sold it for.

The transferor may elect in their tax return for the tax year in which the property is transferred to their spouse or common-law partner (resulting in a disposition) not to have the provisions of subsection 73(1) apply. In such a situation, the taxpayer's proceeds of disposition will be deemed to be equal to the fair market value of the property, and this will result in tax consequences.

You may have transferred or loaned property to your spouse or common-law partner, a person who has since become your spouse or common-law partner, or a trust for your spouse or common-law partner. If that person or the trust sells the property during your lifetime, you usually have to report any capital gain or loss from the sale. You usually have to do this if, at the time of the sale you meet both of the following conditions:

• you are a resident of Canada
• you are still married to, or living in a common-law relationship with, that person

If you are living apart because of a breakdown in the relationship, you may not have to report the capital gain or loss when your spouse or common-law partner sells the property. In such a case, you have to file an election with your income tax and benefit return.

For transfers of property made before May 23, 1985, you have to file the election with your income tax and benefit return for the tax year in which the separation occurred. To make this election, attach to your return a letter signed by you and your spouse or common-law partner that states you do not want subsection 74(2) of the Income Tax Act to apply.

For transfers of property made after May 22, 1985, you can file this election with your income tax and benefit return for any tax year ending after the time you separated. However, for the election to be valid, you have to file it no later than the year your spouse or common-law partner disposes of the property. To make this election, attach to your return a letter signed by you and your spouse or common-law partner that states you do not want section 74.2 of the Income Tax Act to apply.

If you sold the property to your spouse or common-law partner, or a trust for your spouse or common-law partner, and you were paid an amount equal to the fair market value (FMV) of the property, there is another way to report the sale. Generally, you can list the sale at the property's FMV, and report any capital gain or loss for the year you sold the property. To do this, you have to attach to your return a letter signed by you and your spouse or common-law partner. State that you are reporting the property as being sold to your spouse or common-law partner at its FMV and that you are electing for subsection 73(1) of the Income Tax Act not to apply.

If your spouse or common-law partner or the trust later sells the property, your spouse or common-law partner or the trust has to report any capital gain or loss from the sale.

A special situation exists if all of the following apply to you:

• You owned capital property (other than depreciable property or a partnership interest) on June 18, 1971
• You gave the property to your spouse or common-law partner after 1971
• Your spouse or common-law partner later sold the property

In this case, certain rules apply when calculating your and your spouse's or common-law partner's capital gain or loss to remove any capital gains accrued before 1972. For more information, see Archived Interpretation Bulletins IT-209R, Inter-vivos gifts of capital property to individuals directly or through trusts, and its Special Release.

Other transfers of property

If you give capital property as a gift, you are considered to have sold it at its fair market value (FMV) at the time you give the gift. Include any taxable capital gain or allowable capital loss on your income tax and benefit return for the year that you give the gift.

If you sell property to someone with whom you do not deal at arm's length and the selling price is less than its FMV, your selling price is considered to be the FMV. Similarly, if you buy property from someone with whom you do not deal at arm's length and the purchase price is more than the FMV, your purchase price is considered to be the FMV.

Special rules allow you to transfer property at an amount other than the property's FMV. If these rules apply to you, you may be able to postpone paying tax on any capital gains you had from the transfer. 

Examples of common transfers

Forms and publications

• T4037, Capital Gains
• T4013, T3 Trust Guide
• Archived Interpretation Bulletins IT-209R, Inter-vivos gifts of capital property to individuals directly or through trusts
• Archived Interpretation Bulletins IT-209RSR (Special Release), Inter-vivos gifts of capital property to individuals directly or through trusts