Is There Capital Gains Tax When Property Passes to a Surviving Spouse at Death in Canada?

This answer covers Canadian federal tax law, which applies in every province.

Usually not at death: the tax is put off, not cancelled. Normally, a person who dies is treated as selling each capital property at fair market value just before death. The spousal rollover replaces that rule: the deceased is treated as selling at adjusted cost base (or, for depreciable property, the lesser of capital cost and cost amount), and the spouse takes over that same amount.

The spouse must have been resident in Canada immediately before death, and a non-resident spouse does not qualify, so the ordinary deemed disposition applies. The property must also vest indefeasibly in the spouse within 36 months after death, or a longer period the Minister allows on written application. A trust created by the will qualifies if it is resident in Canada, the spouse gets all its income for life, and no one else may get income or capital during that time.

The legal representative can opt out, property by property, on the final return for the year of death, so fair market value applies instead. That can help use the deceased's losses, the capital gains deduction or lower rates. Gain or loss on property that does not roll over is reported on Schedule 3 and line 12700 of the final return.