Tax Efficient Wealth Transfer

Deemed Disposition: What Happens to Your Assets When You Die

The CRA has a principle: death is a taxable event. On the date of your death, the government treats you as if you sold every asset you own—stocks, bonds, mutual funds, rental property, investment real estate, even your cottage—at fair market value (FMV). You owe tax on the gains, even though no cash changed hands and your heirs haven't received a dime.

This rule is called "deemed disposition at death." It applies to almost everything: registered and non-registered investments, investment property, business interests, and even personal assets like art or collectibles if they've appreciated.

The tax rate depends on the type of gain. Capital gains are taxed at 50% inclusion for the first $250,000 in gains in a calendar year (as of 2024), and 66.7% inclusion above that. So if you have $300,000 in capital gains when you die, the first $250,000 is taxed at 50% inclusion (meaning $125,000 is added to your income), and the remaining $50,000 is taxed at 66.7% inclusion ($33,350 added to income). Your taxable capital gain: $158,350. At a combined federal-provincial tax rate of around 43%, that's roughly $68,000 in tax on a $300,000 gain.

One exception: your principal residence (the home you live in) is exempt from capital gains tax when you die. If you own a cottage or investment property, those gains are fully taxable. If you own a business, the first $1,016,836 of gains (as of 2024) may qualify for the lifetime capital gains exemption—a benefit that can shelter substantial appreciation from tax—but the exemption applies only to eligible small business shares, qualified farm property, or qualified fishing property.