All About Estates

Capital Gain Exemption on the Terminal T1 Return

Generally speaking, one is deemed to have disposed of their assets immediately before death. The resulting taxable income may be reduced by available capital gains exemption where the deceased’s assets include either shares of a qualifyinging small business or qualifying farm property. Some fancy footwork may be required to get one last shot at using the remaining capital gains exemption where the deceased’s intention is to transfer his or her assets to a spouse.

First of all, the terminal return should include an election to deem capital assets to be transferred at fair market value to a spouse, rather than the automatic rollover, to trigger the capital gain. This is an “all or nothing” election on a “property-by-property” basis.

For example, if the taxpayer owned 100 common shares, the election may be made on, say, 10 common shares at fair market value and still have a rollover on the other 90. If the authorized capital is nominal – such as two shares, it may be prudent to amend the capital to, say, 1,000 shares prior to the death to allow more flexibility in this area.

Taking a shot at using the remaining capital gain exemption may require a few extra steps so speak with a pro before you go.

About Derek de Gannes
Derek A. de Gannes: Director, Domestic & International Tax of RSM Canada. RSM Canada is committed to the highest level of integrity, quality and professionalism and provides clients with solutions in the area of Audit, Tax and Transaction Services. Email: