What is deemed disposition and how does it apply to everything I own when I die?

Deemed disposition is the Income Tax Act's rule that treats you as having sold all of your capital property — investments, real estate other than an exempt principal residence, private company shares, and more — at fair market value immediately before your death, even though nothing is actually sold. Any accrued capital gain on that property becomes taxable on your final terminal return, which is why a person's death can trigger a significant tax bill even if their estate never sells anything.

Not every asset triggers gain in the same way. Registered accounts like RRSPs and RRIFs are generally treated as fully collapsed and included in income at death rather than as capital property, though a rollover to a surviving spouse or an eligible dependant can defer that. Property transferred to a spouse or a qualifying spousal trust can also roll over at cost instead of fair market value, deferring the deemed disposition until later. Life insurance proceeds and TFSA growth generally aren't taxed this way at all.

Because the tax bill is calculated on your terminal return and can require the estate to find liquidity quickly, understanding which of your assets will trigger deemed disposition, and which won't, is a core part of estate planning.