Common-Law Spouse Inheriting a $1.2M Estate in BC: What CRA Considers a Tax-Free Rollover vs. a Taxable Transfer in 2026

The 12-Month Rule: How CRA Defines a Common-Law Partner for the Spousal Rollover

The spousal rollover is the single most valuable tax provision in Canadian estate planning. It allows RRSPs, RRIFs, and capital property to transfer to a surviving spouse at the deceased's adjusted cost base — deferring all capital gains tax and RRSP income inclusion until the surviving spouse eventually sells the property or withdraws the registered funds. On a $1.2M estate, the rollover can defer $200,000+ in tax.

For legally married couples, the rollover is automatic. For common-law partners, it requires clearing a specific threshold: subsection 248(1) of the Income Tax Act defines a "common-law partner" as a person who cohabits with the taxpayer in a conjugal relationship and has done so continuously for a period of at least 12 months, or is the parent of a child of the taxpayer. The 12 months must be consecutive and unbroken at the date of death — not cumulative across multiple periods of cohabitation.

BC's WESA vs. CRA: Two Definitions, Two Timelines, One Estate

This is where common-law estate planning in BC becomes genuinely dangerous. The federal Income Tax Act and BC's Wills, Estates and Succession Act (WESA) use different definitions of "spouse" — and the gap between them can cost a surviving partner hundreds of thousands of dollars.

Consider a couple that has been together for 18 months. For CRA purposes, the surviving partner is a common-law spouse — the RRSP rollover applies, deemed disposition is deferred, and all tax benefits are available. But under WESA, the partner is not a spouse. If the deceased died without a will, the partner has no intestacy rights and no standing to bring a will-variation claim. The estate passes to children, parents, or siblings under WESA's intestacy hierarchy — and the tax rollover is wasted because the partner never receives the assets.

The $1.2M Worked Example: $400K RRSP + $800K Property in BC

Marcus dies in June 2026 in Vancouver at age 62. He has been living with his common-law partner Priya for 3 years. They are not legally married and have no children together. Marcus's estate consists of a $400,000 RRSP (Priya named as beneficiary on the form), an $800,000 condo held solely in his name (adjusted cost base: $450,000, not the principal residence — he designated a different property), and $50,000 in a non-registered investment account (ACB: $30,000). Marcus has a will leaving everything to Priya.

The RRSP Rollover Election: What the Executor Must Do

The spousal rollover on an RRSP is not automatic in all cases. When the surviving common-law partner is named as the direct beneficiary on the RRSP form, the rollover happens by operation of law — the financial institution transfers the RRSP to the survivor's registered account, and subsection 146(8.1) defers the income inclusion. The executor's role is to file the terminal return reflecting the rollover.

However, if the RRSP beneficiary is the estate (not Priya directly), the rollover still applies — but the executor must actively elect to transfer the RRSP proceeds to Priya's registered account. This is done by filing a designation on the terminal return under subsection 146(8.1), supported by documentation that Priya qualifies as a common-law partner (12+ months of cohabitation). If the executor misses this election — or if the RRSP is distributed as cash to Priya without being transferred to a registered account — the full $400,000 is included as income on the terminal return and the rollover is permanently lost.

BC Probate on $1.2M: What's Included and What Bypasses

British Columbia charges probate fees (officially "probate filing fees") on the gross value of the estate that passes through probate. The BC probate fee schedule is: no fee on the first $25,000, $6 per $1,000 on the value between $25,001 and $50,000 ($150), and $6 per $1,000 on the value above $50,000. On a $1.2M estate where all assets pass through probate, the fee is approximately $7,100 on the first $1.2M above $50,000 = ~$6,900 + $350 = ~$16,450 total.

If Marcus had held the condo in joint tenancy with Priya, the property would pass by right of survivorship outside the estate — reducing the probate base to just $50,000 (the non-registered investments) and the probate fee to approximately $350. This is a common probate-minimization strategy for common-law couples in BC, but it has risks: adding a partner to title triggers a potential property transfer tax, and if the relationship breaks down, the joint tenancy creates complicated property division issues.

Intestacy Disaster: What Happens If There Is No Will

This is the scenario that destroys common-law estates in BC more than any tax issue. If Marcus dies without a will, WESA's intestacy rules determine who inherits — and WESA only recognizes a common-law partner as a "spouse" after two years of cohabitation in a marriage-like relationship.

If Cohabitation Exceeds 2 Years (WESA Recognizes the Relationship)

Priya qualifies as Marcus's spouse under WESA. Under BC intestacy rules, she receives the preferential share (the first $300,000 of the estate) plus 50% of the remainder if Marcus has children from a prior relationship. If Marcus has two children from a prior marriage:

• RRSP ($400,000): Priya receives directly as named beneficiary — outside the estate, outside WESA
• Estate assets ($850,000): Priya gets $300,000 preferential share + 50% of $550,000 = $575,000
• Each child: 25% of $550,000 = $137,500
• Total for Priya: $400,000 + $575,000 = $975,000

If Cohabitation Is Under 2 Years (WESA Does NOT Recognize)

Even if the couple has been together 18 months — well past the CRA 12-month threshold — WESA treats Priya as a legal stranger. The estate passes entirely to Marcus's children (or parents, or siblings if no children exist) under the intestacy hierarchy.

Blended Families: Where the 12-Month Rule Gets Complicated

The 12-month cohabitation rule creates particular problems for blended families where the deceased enters a new common-law relationship after a divorce. Consider a recently divorced person who begins a new relationship, moves in with their new partner, and dies 8 months later. The new partner is not a CRA-recognized common-law spouse — meaning no spousal rollover on any asset. Meanwhile, the ex-spouse lost all spousal rollover eligibility at the time of the divorce or separation.

The result: neither the new partner nor the ex-spouse qualifies for the rollover. Every RRSP dollar is fully taxable on the terminal return. Every non-registered investment triggers deemed disposition. This is the worst possible outcome — and it happens most often in blended-family estates where the deceased assumed the new partner would automatically inherit and qualify for the tax benefits. The 12-month clock does not care about intentions — only about completed cohabitation time.

Capital Gains Inclusion Rate: 2026 Rules for Deemed Disposition

As of 2026, the capital gains inclusion rate is 50% on the first $250,000 of capital gains realized in a year, and 66.67% (two-thirds) on gains exceeding $250,000. This applies to deemed dispositions on death — meaning the $350,000 unrealized gain on Marcus's condo would be taxed as follows if the spousal rollover does not apply:

What Every Common-Law Couple in BC Must Do

The gap between CRA's 12-month definition and WESA's 2-year definition makes BC one of the most complex provinces for common-law estate planning. The rollover saves $200,000+ in tax on a $1.2M estate — but only if the relationship meets the threshold, the will is in place, and the beneficiary designations are correctly structured.

The Bottom Line: 12 Months Saves $285,000 on a $1.2M BC Estate

The spousal rollover is the single biggest tax break in Canadian estate law — and for common-law partners, it hinges entirely on whether CRA recognizes the relationship at the date of death. On a $1.2M BC estate with a $400,000 RRSP and $800,000 in non-registered property, the rollover defers approximately $285,000 in income tax and capital gains tax. Miss the 12-month cohabitation threshold by even one week, and the full tax bill applies.

But the tax rollover is only half the story. BC's WESA requires two years of cohabitation for intestacy and will-variation rights — creating a dangerous 12-to-24-month gap where CRA says "you're a spouse" but WESA says "you're a stranger." Without a will, a common-law partner in this gap receives nothing from the estate except assets with direct beneficiary designations (like the RRSP). The remaining estate passes to children, parents, or siblings — and the spousal rollover on those assets is lost because the qualifying spouse never receives them.

The fix is straightforward: write a will, name your partner on all registered account beneficiary forms, and document your cohabitation start date. The Canadian inheritance tax system is generous to surviving spouses — but only if you qualify, and only if the legal structure is in place to receive the assets. For common-law couples in BC, the margin for error is measured in months.