Definitions: Deemed Disposition

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Dawn Loeffler, BA (Hons), CPA, CA Staff Accountant, Gilmour Knotts

Tax Question:

What is the definition of Deemed Disposition upon death in Canada and what is it comparable to in the United States (U.S.)?

Facts:

In Canada, upon your death, you are deemed to have disposed of or sold all your capital property at the Fair Market Value on the date. This is referred to as a deemed disposition.

Discussion:

When a deemed disposition occurs upon death, there may be a capital gain or loss on the asset if the Fair Market Value (FMV) on the disposition date (referred to as the disposition proceeds) are not equal to the Adjusted Cost Base (ACB) of the capital property. The ACB is typically the cost of the property plus any expenses incurred to acquire it.

The capital gain or loss resulting from this deemed disposition must be reported and is taxed accordingly. Most Canadians are impacted by this deemed disposition as there is no minimum threshold to the value of capital property to which the deemed disposition applies. In Canada, upon death your estate is taxed on the FMV less the ACB of your assets.

In the U.S., the concept of deemed disposition upon death does not exist. Instead, upon your death, your estate is subject to a gift tax only if the value of the amounts you have gifted throughout your lifetime exceeds the Federal Gift Tax Lifetime Exemption. In 2018 the Federal Gift Tax Lifetime Exemption is $11.18 million. In the U.S. your estate is taxed on the total FMV of the asset gifted once your Federal Gift Tax Lifetime Exemption has been met.

Dawn Loeffler, BA (Hons), CPA, CA
Manager, Gilmour Group CPA’s
Email: faqs@gilmour.ca
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