Death of a taxpayer: Transfer of property to a spouse

Section 70(6)

This section of Income tax Act(ITA) allows a deceased taxpayer to transfer certain property at Cost for non-depreciable or at UCC for depreciable property.

Implications:

When your spouse dies, and you have a rental property, this section could apply to you. You can rollover (transfer) your property at cost, therefore, your spouse defers the capital gain tax on his death.  Often time, you need to let your notary know that you want the transfers to be done at cost or UCC. We have seen more than one situation where notary/financial institution did not know about the tax laws and transfer the property at $0(as a gift) without electing FMV for transferee. This action could have adverse tax implication for the dead spouse and the surviving spouse.  The dead spouse deems to dispose it at Fair market value; therefore, pay taxes on Capital gain upon death and surviving spouse’s cost for the property become $0. Therefore, when the surviving spouse sales the property, he/she will incur capital gain, and taxed on whole disposition amount.  On the other hand, if the transfer was done at cost or UCC, on death the transfer would not generate any capital gain or loss, recapture, terminal loss, and the surviving spouse would assume the same property value as those carried by the deceased spouse.  This section of ITA is to allow deferring the capital gains or recapture until the surviving spouse dispose of the property or dies.  

Disclaimer: None of the content is or should be construed as tax advice. We disclaim any liability to anyone arising from reliance on any content of this. Pauls & Associates can review your unique situation and determine appropriate plan to minimize your tax liabilities.