OB Report
November 2019
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Not All Assets Are Created Equal: Death and Taxes

me_microBy Michael Erez CPA, CGA, CFP
Vice President, Director, Odlum Brown Financial Services Limited
Not all assets nor accounts are treated equally when it comes to income tax – in life or after death. This month, we highlight some of the income tax implications that can arise from holding various account types and real estate at the time of death.


Non-Registered Accounts

General Rule:
Deemed disposition at fair market value

  • Even if no securities are actually sold, the Income Tax Act considers (or deems) all securities in a non-registered account to be sold and immediately reacquired at fair market value on the date of death. Any resulting taxable capital gains (50% of capital gains) are added to income in the year of death.
  • Any resulting capital losses must first be deducted against capital gains reported in the year of death. Remaining net capital losses may then be used to reduce taxable capital gains and/or other income in the current and previous years, subject to a number of rules and limitations.

Exception: Spousal rollover

  • When the deceased’s capital property passes to their surviving spouse or common-law partner1 under the terms of a will or by virtue of the asset being owned jointly with right of survivorship, the transfer, by default, takes place at cost, effectively deferring any capital gains or losses. This is known as a “rollover.”
  • Alternatively, the executor can elect the transfer to occur at fair market value on a property-by- property basis to trigger desired capital gains or losses for tax planning purposes.

Other: Private corporation shares

  • In addition to a deemed disposition at fair market value (unless a spousal rollover is available), holding shares of a private corporation at the time of death may result in a number of negative consequences and generally requires specialized tax planning.

Registered Retirement Accounts (RRSPs and RRIFs)
General Rule:
Included in income at fair market value

  • The fair market value of all registered retirement accounts on the date of death is added to the deceased’s income on his or her final income tax return.

Exceptions: Rollover to spouse, dependent child or grandchild

  • Registered funds can be transferred to a spouse designated as “successor annuitant” on a fully tax-deferred basis.
  • Amounts not passing under the successor annuitant rules can be paid to a qualifying survivor, including a spouse or dependent children or grandchildren, to reduce the deceased’s taxable income. Any increases in plan value after December 31 of the year after death, until distribution, are taxable to the beneficiaries.
  • Specific rollover provisions exist for beneficiaries who are financially dependent children or grandchildren under the age of 18.
  • A rollover to a Registered Disability Savings Plan (RDSP) for a financially dependent infirm child or grandchild may also be available.

Other Considerations

  • Depending on the amount of income expected on the deceased’s final income tax return, the estate representative and beneficiaries may jointly elect, for tax purposes, to report a portion of the account balance on the deceased’s tax return, rather than rolling over the entire amount.

Tax-Free Savings Accounts (TFSAs)
General Rule:
Tax-free

  • The death of a TFSA holder does not trigger any immediate income tax consequences.

Other TFSA Considerations

  • At Odlum Brown, the default and only beneficiary designation available for a spouse named in a TFSA contract is “successor holder.” As successor holder, the surviving spouse automatically becomes the new account holder and keeps the tax-exempt status of the TFSA without affecting their own contribution room.
  • If the surviving spouse is named as a beneficiary rather than successor holder, the proceeds can be used to make an “exempt” contribution to the spouse’s TFSA that does not affect the survivor’s TFSA contribution room. However, any increase in value between the date of death and transfer would be taxable to the surviving spouse.2
  • If the beneficiary is someone other than a spouse, payments will only be taxable to the extent that they include income or capital gains earned after the holder’s death. Such beneficiaries can contribute any of the amounts they receive to their own TFSA as long as they have unused TFSA contribution room.

Real Estate
General Rule:
Deemed disposition at fair market value

  • Real estate is deemed to be sold at fair market value on the date of death. Any resulting taxable capital gains (50% of capital gains) are added to income in the year of death.
  • If capital cost allowance (CCA) – depreciation for tax purposes – has been claimed (for example, on a rental property), any past CCA deductions claimed in excess of the final market value of the building will be “recaptured” and added to income in the year of death.
  • Any resulting capital losses on non-personal-use property must first be deducted against capital gains reported in the year of death. Remaining net capital losses may then be used to reduce taxable capital gains and/or other income in the current and previous years, subject to a number of rules and limitations.
  • Any resulting capital losses on personal-use property are limited to offset capital gains on personal-use property, if available.

Exception: Spousal rollover

  • A spousal rollover is available on the transfer of real estate between spouses, similar to non-registered accounts, as described above.

Exception: Principal residence

  • If a property qualifies as your principal residence, your executor can designate it as such on your final tax return and claim the principal residence capital gains exemption to eliminate any capital gains. Seek professional tax advice on whether a property qualifies for all or part of the exemption, especially when holding more than one property that may qualify.

A Note on Probate
The probate process and associated fees on an estate are governed differently by each province and territory and are separate and distinct from the income tax rules described in this article, which are administered by the Canada Revenue Agency (CRA).

To learn more about the potential tax and probate implications that could affect your estate or for more information about the products and services offered by Odlum Brown Financial Services Limited, contact us through your Odlum Brown Investment Advisor or Portfolio Manager.


1 All references to a “spouse” in this document also apply to a common-law partner.

2 The contribution must be made before the end of the year following the holder’s death and designated as an exempt contribution on the survivor’s income tax return.

The information contained herein is for general information purposes only and is not intended to provide financial, legal, accounting or tax advice and should not be relied upon in that regard. Many factors unknown to Odlum Brown Financial Services Limited may affect the applicability of any matter discussed herein to your particular circumstances. You should consult directly with your financial advisor before acting on any matter discussed herein. Individual situations may vary.