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Find out what deemed disposition means and in what situations you may have to pay tax as a result.
A deemed disposition is a tax event that most commonly occurs when you die or leave Canada permanently. For tax purposes, certain types of property are treated as if you’ve sold them (at fair market value) immediately before your death or emigration.
For example, if you leave Canada permanently, you may be deemed to have disposed of your assets and must pay tax on any capital gains. Even though you continue to hold the investments, you are taxed as if you sold them. This is sometimes referred to as departure tax.
Deemed dispositions when you die, appropriately known as a death tax, is designed to prevent families from perpetually avoiding taxes by handing down assets from generation to generation.
Other situations that may involve a deemed disposition include trusts, gifts, transferring assets from a non-registered account to a registered account, changing ownership of an investment account from sole to joint ownership, changing how a property is used (for example, changing a rental property into a principal residence) and more. Consult a tax professional if you have questions about deemed dispositions.
Example: “When Elvira got married, she changed her investment account from an individual account to a joint account with her husband. When she filed her tax return, she was surprised to learn that the Canada Revenue Agency viewed this as a deemed disposition of half the value of the account, triggering capital gains tax.”
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