Page 174 - A Canuck's Guide to Financial Literacy 2020

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▪ A business where the deceased was a partner in – income from a business that
the deceased taxpayer was a partner in can be reported in a separate tax return.
▪ “Rights and Things” – includes income that the deceased taxpayer was entitled to
but was not paid at the time of death. This could include things such as OAS
payments, bond interest, accounts receivables, dividends, vacation pay, CPP,
bonuses, etc.

Deemed Disposition of Property

Just before death of a taxpayer, they’re deemed to have sold all of their property at Fair
Market Value (FMV) even though no actual sale took place. This could include your home,
cottage, securities, land, buildings, equipment, etc. This would trigger capital gains or a
capital loss.

A capital gain means that the deemed proceeds of the property was higher then what they
purchased it for, known at the Adjusted Cost Base (ACB). According to the Income Tax Act,
only 50% of the increase of profits would be taxed at the deceased marginal tax rate.

However, if the deceased was married or had a common law partner, the capital property
can be rollover in their name at the Adjusted Cost Base or Fair Market Value. Rolling the
property over at the adjusted cost base (ACB) will result in a tax deferral. Keep in mind that
when the assets are sold in the future, a tax liability will be triggered in which the spouse
would be responsible for. Depending on your tax obligations, individuals may also rollover
the property at the FMV. Below are scenarios where it would make sense doing so.

Transferring Capital Property at Fair Market Value

▪ You Have Capital Losses from Prior Years – It would be beneficial to transfer
property to the spouse at FMV in the year of death, if the deceased had capital losses
in prior years. If so, the deceased’s estate would be able to deduct capital losses
against capital gains. Depending on the property, the capital losses would offset any
gains thus resulting in no tax payable.
▪ Taking Advantage of Lifetime Capital Gains Exemption – If the deceased owned a
Qualified Small Business Corporation (QSBC) or a qualified fishing or farming
property with unrealized gains then they could transfer the property at the FMV and
take advantage of the Lifetime Capital Gains Exemption (LCGE). As of 2019, the
exemption is $866,912. Since only 50% of the capital gains from disposition is
included in your taxable income, the allowable tax deduction is $433,456.
▪ Property with Accrued Loss – Capital losses can be only used to offset capital
gains but special tax rules apply during time of death. The deceased’s estate may be
able to deduct any excess net capital losses accrued against other sources of income
on the final tax return or in prior year. By doing so, they can reduce the tax payable
that would be trigger by transferring the property at FMV.