Spousal Rollover on Death 

Understanding Spousal Rollover in the Event of Death  

When a person passes away, there’s often a concentration of income recognition, especially for accrued but unrealized gains on capital property. This situation can lead to a substantial tax burden for both the deceased and their estate. This is due to the Income Tax Act’s provision that deems an individual to have disposed of and then reacquired all their capital property at fair market value (FMV) immediately before their death. 

To mitigate this, a rollover provision is available. This rollover, detailed in subsection 70(6) of the Income Tax Act, comes into play when capital property is transferred to the deceased person’s spouse or common-law partner, provided both were residents in Canada. This rollover happens automatically but can be opted out of in certain situations where it might be more beneficial not to have the property rollover. 

An interesting aspect of this provision is the definition of “spouse” and “common-law partner.” While “spouse” isn’t explicitly defined in the Income Tax Act, “common-law partner” is. This leads to a unique situation where a person could technically have a spouse and one or more common-law partners simultaneously. 

Key Question and Answer: 

Can the rollover provision in subsection 70(6) be applied to a transfer to both a spouse and a common-law partner? 

Yes, if all conditions in subsection 70(6) are met, the rollover would automatically apply to the property transferred to each of the spouse and the common-law partner. 

This provision is a crucial aspect of tax planning and estate management, offering a way to manage potential tax liabilities that arise upon the death of a property owner.