- Property passing to a spouse, common-law partner or qualifying spousal trust rolls over at the deceased's adjusted cost base, not fair market value.
- The property must vest indefeasibly in the recipient within 36 months after the death, and the Minister can extend that period.
- The legal representative can elect out of the rollover one property at a time on the return for the year of death.
You have lost a spouse or partner and have been told the estate may not owe tax on what passes to you. That is often the effect of the spousal rollover, but it is a deferral, not a cancellation, and several assets follow their own rules.
This article explains the basic rollover, how common assets are treated, and why a representative might choose to opt out. Details depend on the will and the account contracts, so confirm them with a lawyer or accountant.
What the rollover does
Normally a person is deemed to have disposed of each capital property immediately before death at its fair market value. The rollover is an exception. Property of a deceased who was resident in Canada that passes to a spouse, a common-law partner or a qualifying spousal trust rolls over at the deceased's adjusted cost base instead of fair market value.
The property must vest indefeasibly in the recipient within 36 months after the death, and the Minister can extend that period. When the home passes to a surviving spouse or common-law partner, no principal residence designation for the period before death, and no deemed disposition or gain, has to be reported on the final return. The representative should keep records of the years the deceased could have designated.
How common assets are treated
| Asset | Treatment when a survivor is involved |
|---|---|
| RRSP | If all the property goes directly to the survivor's RRSP, RRIF, PRPP, SPP or an eligible annuity before the end of the year after the death, no T4RSP is issued in the deceased's name |
| RRIF | A surviving spouse or common-law partner can continue as successor annuitant, so the full RRIF value is not taxed on the final return |
| TFSA | A survivor named as successor holder takes ownership, growth after death stays sheltered, and the deceased is not considered to have received any amount |
| HBP or LLP balances | Unpaid balances are included on the final return unless the representative and the survivor jointly elect to have the survivor continue repayments |
If the estate is named as RRSP beneficiary and the survivor is entitled under the will, the survivor and the legal representative can jointly elect in writing to treat the estate's payments as paid to the survivor. The election is attached to the survivor's return.
A TFSA is different if the survivor is named as beneficiary rather than successor holder. A successor holder's own contribution room is not affected, as long as the deceased's TFSA had no excess amount.
Electing out of the rollover
The legal representative can elect, one property at a time on the return for the year of death, not to use the spousal rollover. The deemed disposition at fair market value then applies to that property.
Why would anyone do that? The election can be used to realize gains or losses on the final return. For example, a loss on one property might offset a gain on another, and net capital losses for the year of death and the year before can be deducted from income other than capital gains. Whether it helps depends on the whole picture, including the rates that apply. A tax professional can model it.
Limits and things to watch
- The rollover applies to property of a deceased who was resident in Canada.
- Registered plans carry their own conditions and deadlines, such as moving the funds before the end of the year after the death.
- Qualified farm or fishing property left to a child has its own separate exception.
- The survivor's own return is due on the later of their normal due date and 6 months after the death, but any balance owing must still be paid by April 30 to avoid interest.
- Depreciable property such as a rental building can trigger recapture or a terminal loss, so ask how it is treated.
What to do next
- Get the will, the beneficiary designations on each registered plan, and the account contracts.
- List each property with its cost and value at death.
- Check how each asset is passing: by will, by designation, or by joint ownership.
- Ask whether to elect out for any property before the final return is filed.
- Keep records for any property you take on the rollover, since the original cost carries forward.
Frequently asked questions
Is the spousal rollover automatic?
It applies to qualifying property that passes to a spouse, common-law partner or qualifying spousal trust, and the legal representative can elect out. Whether the property qualifies depends on how it passes and when it vests.
Does the rollover mean no tax is ever paid?
No. The property rolls over at the deceased's adjusted cost base instead of fair market value, which defers the tax at death. The tax picture can still change when the survivor later sells or dies.
Does the rollover apply to common-law partners?
Yes. The rule covers a spouse, a common-law partner or a qualifying spousal trust.
Can I choose the rollover for some assets but not others?
Yes. The election out is made one property at a time on the return for the year of death.
Sources
- Income Tax Act, s. 70 (Justice Laws) — Justice Laws (federal)
- CRA – Taxable capital gains (someone who died) — canada.ca
- CRA – Transfer and report RRSPs (someone who died) — canada.ca
- CRA – Report RRIF income (someone who died) — canada.ca
- CRA – If you are a successor holder of a TFSA — canada.ca
- CRA – What happens when a TFSA holder dies — canada.ca
- CRA – Filing and payment due dates (someone who died) — canada.ca
Links go to official government, court and regulator pages. The law changes — confirm you are reading the current version.
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