Suspended loss not released upon death

Written on March 20, 2013 – 9:00 am | by Derek de Gannes

The Income Tax Act has many triggering events which, when engaged, lead to tax consequences. One of the many triggering events is the death of an individual. The commentary that follows examines a situation where the death of the individual did not trigger the release of a suspended loss.

The Canada Revenue Agency recently commented on a hypothetical set of facts where an individual (“transferor”) transferred a depreciable property to his/her spouse and elected pursuant to have the transfer occur at fair market value instead of cost. The transferor would otherwise have realized a terminal loss on the transfer of the depreciable property but the terminal loss was denied since the transferor’s spouse continued to own the property 30 days after the transfer. To further compound matters, the transferor transferor subsequently died more than 30 days after the transfer but before the spouse disposed of the property.

The question was whether the remaining balance of the loss relating to this hypothetical property could be claimed as a terminal loss in the year of transferor’s death?

The relevant tax rule lists a number of triggering events that would release the terminal loss. In this case, death of a transferor is not a “triggering event” meaning there does not appear to be any other mechanism that would permit the transferor to claim the remaining balance of the loss, either for the year of death or for any other year.

Speak with a pro about suspended losses and their tax implications.

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