Generally speaking, where property such as marketable securities, shares of a private company, real estate are directly transferred upon death to the deceased’s spouse or common-law partner or a trust for their benefit, such transfers are automatically transferred at cost amount or tax cost amount pursuant to the provisions of the Income Tax Act and no taxable gains on the transfer are incurred. However, there may good reason to elect out of these provisions to trigger taxable capital gains.
The deceased’s tax position may include unused capital gains deduction for eligible small business corporations or farm land, unused capital losses carried forward or alternative minimum tax carry forward. Under these circumstances, as the deceased’s legal representative, it might make sense for you to elect out of the automatic rollover provisions and elect a value sufficient to cause capital gains so as to “soak up” unused capital gains deduction, capital losses or draw down alternative minimum tax. You can choose a value between cost (or tax cost) and fair market value to fit the circumstances.
As a result of the above, the spouse or common-law partner or trust as beneficiary inherits the capital property with a higher tax cost base and will be shielded from incurring tax on the difference between the cost prior to transfer and the amount claimed on the deceased’s tax return as determined above.
So review the deceased’s tax position with a professional so you can evaluate whether or not you should cause the deceased transferor to elect out of automatic capital property transfers to save the spouse or common-law partner transferee taxes in the future.
Wishing you a happy holiday. Steven Frye