A capital gain or loss normally only occurs when a property is actually sold. However, there are instances where a property may be deemed to be sold. That is, you must treat the situation as if you have actually sold the asset at fair market value (FMV). Some types of deemed dispositions:
Income Tax Act s. 39(1)(a), 248(1)
Securities are transferred from a non-registered investment account into a registered retirement savings plan (RRSP), registered disability savings account (RDSP), tax-free savings account (TFSA), or registered retirement income fund (RRIF). In this case, the deemed proceeds will be the market value of the securities at the time of transfer to the registered account. Note that if a loss has occurred in the transfer to an RRSP, RDSP, TFSA or RRIF, it will not be deductible for tax purposes. See our article Transfer shares to a registered account, but not at a loss.
Income Tax Act s. 69(1)(b)(ii)
Property is gifted to a third party. In this case, the property is deemed to have been sold at its fair market value at that time. See our articles Are Gifts or Inheritances Taxable? and Attribution Rules re Gifts, Transfers, or Loans to a Spouse or a Related Minor Child - links below. When property is sold non-arm's length for no proceeds or for less than market value this can result in double taxation.
Use of property changes from personal use to business or investment use, or vice versa. Again, the property is deemed to have been sold at its fair market value. An example is a personal residence being converted to a rental property, or a rental property being converted to a personal residence. However, there are special rules for determining the FMV / new cost basis of depreciable property when personal use property such as a principal residence is converted to a rental property. See our article on Change in use of real estate.
Income Tax Act s. 128.1(4)(b)
A taxpayer ceases to be a resident of Canada for tax purposes. Certain properties are excluded, and in some cases where capital gains occur, a tax payment can be delayed until the property is sold. See our article Leaving Canada (Emigrating From Canada).
Income Tax Act s. 70(5)-(10)
When an individual dies, all of their capital property is deemed to have been sold immediately prior to death for proceeds equal to the fair market value of the property, as per s. 70(5)(a) of the Income Tax Act.
See our article on Capital Losses, which explains the special tax treatment for capital losses in the year of death.
See our Wills and Estates page.
Canada Revenue Agency (CRA) Resources
Revised: October 01, 2022
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