Tax rules when a taxpayer dies
Death of a taxpayer — income and capital property
Section 70 deems a deceased taxpayer to have disposed of all capital property at fair market value immediately before death, triggering capital gains and income. Spousal rollover provisions and other rules can defer or eliminate these consequences.
Plain-language explanation
Section 70 sets out the tax consequences of death. The key rule is the "deemed disposition" — the deceased is treated as having sold all capital property at fair market value (FMV) immediately before death.
Deemed disposition (s.70(5)): All capital property owned at death is deemed disposed of at FMV. Capital gains and losses are calculated and reported on the deceased's final T1 return. Recaptured CCA on depreciable property is also triggered.
Spousal rollover (s.70(6)): If property passes to a surviving Canadian-resident spouse or common-law partner (directly or through the estate), the deemed disposition occurs at the property's ACB rather than FMV. The gain is deferred until the spouse disposes of the property. The legal representative must elect to use the rollover.
RRSP/RRIF on death (s.146(8.8)/s.146.3(6)): RRSPs and RRIFs collapse on death and are included in the deceased's income in the year of death, unless rolled to a surviving spouse's RRSP/RRIF or to a financially dependent child or grandchild.
Rights and things return (s.70(2)): Amounts the deceased had a right to receive at death but had not yet received (vacation pay, crop inventory) can be reported on a separate "rights and things" T1 return, with its own set of personal credits — potentially saving significant tax.
Example
Robert dies in 2026 holding publicly traded shares (ACB: $50,000, FMV: $180,000). The $130,000 capital gain is reported on his final T1. If the shares pass to his spouse Maria under the s.70(6) rollover, the gain is deferred — Maria inherits at $50,000 ACB and pays tax when she sells.
Amendment history
Significant changes to this provision. Older versions help you understand rules that applied in prior tax years.
Graduated Rate Estates (GREs) introduced — estates of deceased individuals are taxed at graduated rates (like individuals) for up to 36 months after death, rather than the flat top rate that previously applied to testamentary trusts.
Common questions
Is there an "estate tax" in Canada? +
Canada does not have a formal estate tax. Instead, a deemed disposition at death triggers capital gains tax on the deceased's final return. The effective "estate tax" is the capital gains tax on unrealized gains. Proper planning (RRSP, principal residence exemption, spousal rollover) can minimize this.
Do beneficiaries pay tax on an inheritance? +
Generally no. Beneficiaries receive inherited property at its FMV without paying personal income tax. The tax is paid by the estate on the deceased's final return. However, RRSP/RRIF proceeds paid to a non-spouse beneficiary are included in the deceased's income.
Key terms
Related sections
Source: Income Tax Act, RSC 1985, c. 1 (5th Supp.), section 70. — Read the official text on Justice Canada
These summaries are for educational purposes only and do not constitute legal or tax advice. Speak with a CPA for advice on your specific situation.