What is the spousal rollover on death in Canada and how does it apply in Ontario?
The spousal rollover lets capital property pass to a surviving spouse tax-deferred. Normally a person is deemed to have disposed of capital property at fair market value immediately before death. If the property passes to a surviving spouse or common-law partner resident in Canada, or to a testamentary spousal trust, the deceased is instead deemed to sell at adjusted cost base, the capital gain is zero, and the survivor takes over the deceased's cost.
The property must be locked in for the spouse or trust no later than 36 months after death, though a written extension can be requested before then. A spousal trust that fails the conditions gets no rollover. The legal representative can elect out in the final return, property by property.
Registered plans have their own rules: an unmatured RRSP is not taxed to the deceased if the spouse is sole beneficiary and everything is transferred to a plan for the spouse by December 31 of the year after death, and a RRIF is not taxed if the spouse is named successor annuitant. Whether to roll over or elect out depends on the estate's tax position.
Key takeaways
- Without a rollover, a person is deemed to have disposed of capital property at fair market value immediately before death.
- If the property passes to a surviving spouse or common-law partner resident in Canada, or to a testamentary spousal trust, the deceased is deemed to sell at adjusted cost base and the survivor takes over the deceased's cost.
- The property must be locked in for the spouse or trust within 36 months of death, and a written extension request can be made before that period ends.
- The legal representative can elect out in the final return, property by property, and transfer at fair market value instead.