Fair market value election on death

Written on January 29, 2013 – 9:00 am | by Derek de Gannes

When a person dies that person is deemed to have sold their capital property for fair market value proceeds unless the will directs the executor to transfer the property to a spouse or spouse trust in which the property may be transferred at tax cost. Our tax rules allow the executor to elect proceeds in excess of tax cost, say, if the deceased had tax losses or other shelter what would otherwise be a taxable gain. Let’s say the capital property was one unit, say, a private corporation share and the executor wished to elect on a fractional portion of the share.

It is common today for fractional shares to be the subject of transactions and such fractional shares are recognized by corporate law. Notwithstanding corporate law, the Canada Revenue Agency confirmed its position in a recent technical interpretation wherein the single share represents a property of the deceased taxpayer and as such the legal representative cannot elect in respect of a fraction of that single share so as to apply the tax cost rollover to an arbitrary portion of that share and proceeds in excess of tax cost to the balance of the share.

Executors should consult their tax advisors when making the fair value tax election.

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