Deemed Disposition on Death for BC Residents With $1M in Non-Registered Accounts: 2026 Tax Walkthrough
Key Takeaways
- 1Understanding deemed disposition on death for bc residents with $1m in non-registered accounts: 2026 tax walkthrough is crucial for financial success
- 2Professional guidance can save thousands in taxes and fees
- 3Early planning leads to better outcomes
- 4GTA residents have unique considerations for inheritance planning
- 5Taking action now prevents costly mistakes later
Quick Summary
This article covers 5 key points about key takeaways, providing essential insights for informed decision-making.
Quick Answer
When a British Columbia resident dies holding $1,000,000 in non-registered equities, CRA treats the entire portfolio as sold at fair market value immediately before death under section 70(5) of the Income Tax Act — the deemed disposition rule. If the original adjusted cost base (ACB) was $400,000, the deemed disposition triggers a $600,000 capital gain. Under 2026 rules, the first $250,000 of capital gains is included in income at 50% ($125,000 taxable), and the remaining $350,000 at 66.67% ($233,345 taxable), producing $358,345 in total taxable capital gains income. Combined with other terminal-year income, this pushes the deceased into the top federal-provincial bracket — 53.50% in BC — generating approximately $175,000 to $192,000 in tax on the capital gain alone. BC probate fees add another $14,000 (1.4% on estate value above $50,000). If the portfolio passes to a surviving spouse, the spousal rollover under section 70(6) defers the entire deemed disposition — no capital gains tax is triggered until the surviving spouse sells or dies. If it passes to an adult child, there is no deferral: the estate pays the full tax, and the child inherits at a stepped-up ACB of $1,000,000. By contrast, $1M held in a TFSA passes to the successor holder completely tax-free — no deemed disposition, no probate complications, no terminal return inclusion.
Key Takeaways
- 1Section 70(5) of the Income Tax Act deems the deceased to have disposed of all non-registered capital property at fair market value immediately before death. On a $1M portfolio with a $400,000 ACB, the deemed disposition triggers a $600,000 capital gain — reported entirely on the terminal T1 return.
- 2Under 2026 capital gains rules, the first $250,000 of gains is included at 50% and gains above $250,000 at 66.67%. A $600,000 gain produces $358,345 in taxable income from capital gains alone, pushing the deceased into BC's top combined marginal rate of 53.50%.
- 3BC probate fees (estate administration tax) are approximately 1.4% on estate value above $50,000. On a $1M non-registered portfolio, probate fees are approximately $13,300 — payable before the estate is distributed.
- 4The spousal rollover under section 70(6) allows non-registered assets to transfer to a surviving spouse at the deceased's original ACB, deferring all capital gains tax. The executor can elect OUT of the rollover on a security-by-security basis if it is advantageous to trigger some gains on the terminal return.
- 5ACB tracking is the executor's biggest operational challenge. Every purchase, reinvested distribution, return of capital adjustment, and corporate reorganization since the account was opened must be reconstructed to calculate the correct deemed disposition gain. Incorrect ACB means incorrect tax — and CRA can reassess.
- 6If the same $1M were held in a TFSA with a named successor holder, the entire balance transfers tax-free with no deemed disposition, no terminal return inclusion, and no loss of contribution room. The tax difference between dying with $1M in a TFSA versus $1M non-registered can exceed $190,000.
- 7The heir who receives the non-registered portfolio inherits at a stepped-up ACB equal to the fair market value at the date of death. Future gains are measured from this new cost base — the heir is not taxed again on the same appreciation that was taxed on the terminal return.
- 8The executor must file the terminal T1 return, and can optionally file a rights-or-things return under section 70(2) for declared but unpaid dividends — creating a second set of graduated tax brackets to reduce the overall tax burden.
Quick Summary
This article covers 8 key points about key takeaways, providing essential insights for informed decision-making.
How Section 70(5) Triggers Tax on a $1M Non-Registered Portfolio at Death
When a BC resident dies holding $1,000,000 in non-registered equities, section 70(5) of the Income Tax Act deems the deceased to have disposed of every security at fair market value immediately before death. The deceased did not actually sell anything — CRA treats the death itself as a taxable event. Every share, ETF unit, and mutual fund holding in the non-registered account is treated as sold at its closing price on the date of death.
The capital gain on each security is calculated as fair market value minus adjusted cost base (ACB). These individual gains are aggregated into a single net capital gain figure and reported on the deceased's terminal T1 return — the final income tax return filed by the executor on behalf of the deceased. For a portfolio with a total FMV of $1,000,000 and a total ACB of $400,000, the deemed disposition triggers a $600,000 capital gain.
Why Non-Registered Accounts Are the Most Expensive Assets to Die With
Registered accounts have their own death-tax rules — RRSPs and RRIFs are included as income at 100%, and TFSAs pass tax-free. But non-registered accounts face the unique burden of deemed disposition: decades of unrealized capital gains are compressed into a single tax year, stacking on top of the deceased's pension, CPP, OAS, and any other terminal-year income. A $600,000 capital gain that might have been spread across 20 years of gradual selling is instead taxed entirely in the year of death — at the highest marginal rates.
The 2026 Capital Gains Math: 50% and 66.67% Inclusion Rates
Under the 2026 capital gains rules, individuals face a two-tier inclusion system. The first $250,000 of capital gains in a tax year is included in income at 50%. Any capital gains above $250,000 are included at 66.67% (two-thirds). This tiered structure means large deemed dispositions are taxed more heavily than smaller ones.
Capital Gains Inclusion Calculation: $600,000 Gain
| Gain Tier | Amount | Inclusion Rate | Taxable Amount |
|---|---|---|---|
| First $250,000 | $250,000 | 50% | $125,000 |
| Above $250,000 | $350,000 | 66.67% | $233,345 |
| Total | $600,000 | — | $358,345 |
The $358,345 in taxable capital gains is added to the deceased's other terminal-year income (pension, CPP, OAS, rental income, etc.) to determine the total taxable income on the terminal return.
The Terminal Return: What BC Residents Actually Pay at the $1M Tier
British Columbia's top combined federal-provincial marginal tax rate is 53.50% — the rate that applies to taxable income above $252,752. For a deceased BC resident with $65,000 in other terminal-year income and $358,345 in taxable capital gains, total taxable income is $423,345. The bulk of the capital gains income sits in the top bracket.
Terminal Return Tax Summary: $1M Portfolio, $400K ACB, $65K Other Income
| Component | Amount |
|---|---|
| Other terminal-year income (pension, CPP, OAS) | $65,000 |
| Taxable capital gains (50% + 66.67% tiers) | $358,345 |
| Total taxable income | $423,345 |
| Estimated federal tax | ~$114,000 |
| Estimated BC provincial tax | ~$64,000 |
| Total tax on terminal return | ~$178,000 |
The effective tax rate on the $600,000 capital gain is approximately 29–30% of the total gain — lower than the marginal rate because the first $250,000 of gains benefits from the 50% inclusion rate and lower tax brackets absorb some of the income.
This $178,000 tax bill is paid by the estate — not by the heir. The executor must ensure sufficient liquid assets exist to pay CRA before distributing the remaining estate to beneficiaries. If the portfolio must be partially liquidated to pay the tax, the executor sells securities at current market values — which may have moved since the date of death, potentially creating additional small gains or losses in the estate.
BC Probate Fees: The Second Layer on Top of Capital Gains Tax
British Columbia's probate fees apply to the gross value of estate assets that pass through probate — before capital gains tax is deducted. The rates for 2026 are: no fee on the first $25,000, $6 per $1,000 between $25,001 and $50,000, and $14 per $1,000 above $50,000.
BC Probate Fee Calculation: $1M Non-Registered Portfolio
| Estate Value Tier | Rate | Fee |
|---|---|---|
| First $25,000 | $0 | $0 |
| $25,001 – $50,000 | $6 per $1,000 | $150 |
| $50,001 – $1,000,000 | $14 per $1,000 | $13,300 |
| Total BC probate fees | — | $13,450 |
Probate fees are calculated on the gross estate value — the full $1M — not the net after tax. The estate effectively pays $13,450 in probate plus $178,000 in income tax, totaling approximately $191,450 in combined government levies.
Probate Avoidance Strategies for Non-Registered Accounts
Unlike registered accounts (which can name beneficiaries directly), non-registered investment accounts generally cannot name a beneficiary in BC — they must pass through probate. Joint ownership with right of survivorship is one workaround, but it creates immediate tax and attribution issues during life. An alter ego trust (for individuals 65+) or a joint partner trust can hold non-registered investments and bypass probate at death, but the deemed disposition still applies — the trust pays the capital gains tax. Probate avoidance saves the $13,450 fee but does not eliminate the $178,000 capital gains tax.
The ACB Tracking Requirement: The Executor's Biggest Operational Challenge
To calculate the deemed disposition gain accurately, the executor must reconstruct the adjusted cost base (ACB) for every security in the portfolio. ACB is not simply the original purchase price — it is a running calculation that must account for every transaction since the account was opened.
Additional Purchases (Averaging)
If the deceased bought 500 shares of RBC at $80 and later bought 300 shares at $120, the ACB per share is not $80 or $120 — it is the weighted average: (500 × $80 + 300 × $120) ÷ 800 = $95 per share. Every additional purchase changes the average ACB per share across the entire holding.
Reinvested Distributions (DRIP)
Dividend reinvestment plans (DRIPs) create new shares at the reinvestment price. Each reinvested distribution increases the total ACB and changes the average cost per share. A portfolio that has been DRIPing for 20 years may have hundreds of small DRIP transactions that must be accounted for. Missing these adjustments understates ACB and overstates the gain — the estate pays more tax than it should.
Return of Capital Distributions
Some mutual funds and ETFs distribute return of capital (ROC), which reduces ACB. If the deceased received $15,000 in ROC distributions over the years and did not track them, the ACB is overstated by $15,000 — meaning the deemed disposition gain is understated by $15,000. CRA can reassess if ROC adjustments were not properly applied. T3 slips from prior years identify the ROC component of each distribution.
Corporate Reorganizations and Mergers
If a company in the portfolio was acquired, merged, or reorganized, the ACB must be reallocated across the successor securities based on the terms of the reorganization. A stock split doubles the shares and halves the ACB per share. A merger may convert shares of Company A into shares of Company B at a specific ratio, with or without a taxable component. Each event must be traced through the brokerage records.
The ACB Data Gap: Brokerage Records Are Often Incomplete
Brokerage firms provide "book value" or "average cost" on account statements, but this figure is often unreliable — especially for accounts held for decades. Brokerages may reset ACB data when accounts are transferred between institutions, fail to account for corporate reorganizations, or misapply return of capital adjustments. The executor should request complete historical transaction records, cross-reference with T3 and T5 slips for ROC and reinvested distributions, and consider hiring a tax professional or ACB tracking service for portfolios with complex histories.
The Spousal Rollover: Deferring the Entire $178,000 Tax Bill
If the $1M non-registered portfolio passes to a surviving spouse or common-law partner, section 70(6) of the Income Tax Act provides an automatic spousal rollover. The deemed disposition is deferred — the surviving spouse inherits the portfolio at the deceased's original ACB of $400,000, and no capital gains tax is triggered on the terminal return.
The $600,000 unrealized gain follows the portfolio to the surviving spouse. When the surviving spouse eventually sells the securities or dies, the gain is taxed at that point — potentially at different rates, in a different province, and against a different income profile. The rollover does not eliminate the tax; it defers it.
When to Elect Out of the Spousal Rollover
The executor can elect out of the spousal rollover on a security-by-security basis. This triggers deemed disposition on selected securities while rolling over others. Electing out makes sense when:
- Unused capital loss carryforwards: The deceased has accumulated capital losses from prior years that expire at death if unused. Triggering gains on the terminal return allows these losses to offset the gains — the losses cannot be transferred to the surviving spouse.
- Low other terminal-year income: If the deceased died early in the year with minimal pension or employment income, the lower tax brackets are available to absorb some capital gains at reduced rates.
- Unused non-refundable credits: Disability tax credit, age amount, pension income credit, and medical expense credits that cannot be transferred to the spouse can be used against triggered gains.
- Charitable donation receipts: The terminal return allows charitable donations up to 100% of net income (versus the normal 75% limit), which can shelter triggered capital gains.
$1M in a TFSA vs. $1M Non-Registered: The Tax Gap at Death
The most dramatic comparison is between dying with $1M in a TFSA with a successor holder versus $1M in a non-registered account. The difference is not marginal — it is transformative.
Death Tax Comparison: $1M TFSA vs. $1M Non-Registered (BC Resident)
| Factor | Non-Registered ($400K ACB) | TFSA (Successor Holder) |
|---|---|---|
| Deemed disposition gain | $600,000 | $0 |
| Capital gains tax | ~$178,000 | $0 |
| BC probate fees | $13,450 | $0 |
| Total government levies | ~$191,450 | $0 |
| Net to heir | ~$808,550 | $1,000,000 |
| Impact on heir's own TFSA room | N/A | None — inherited TFSA is separate |
The TFSA successor holder designation bypasses both capital gains tax and probate. The surviving spouse receives $1,000,000 versus approximately $808,550 from the non-registered account — a $191,450 difference on the same underlying investments.
This $191,450 gap is why maximizing TFSA contributions during your lifetime is one of the most powerful estate planning strategies available to Canadians. Every dollar shifted from non-registered to TFSA during your working years saves your estate approximately 19 cents in death taxes at this portfolio size — and the savings grow as the portfolio grows.
What the Heir Actually Receives: The After-Tax Walkthrough
Pulling all the components together, here is what happens to the $1,000,000 non-registered portfolio when the BC resident dies and the heir is an adult child (no spousal rollover available):
Estate Settlement Summary: $1M Non-Registered to Adult Child
| Item | Amount |
|---|---|
| Portfolio fair market value at death | $1,000,000 |
| Less: Capital gains tax on terminal return | ($178,000) |
| Less: BC probate fees | ($13,450) |
| Less: Tax on other terminal-year income | ($15,000) |
| Less: Legal and executor fees (estimated) | ($10,000–$25,000) |
| Net to adult child heir | ~$768,550–$783,550 |
The heir receives approximately 77–78 cents on the dollar. The heir's new ACB for the inherited portfolio is $1,000,000 (stepped up to FMV at death) — future gains are measured from this new base.
The heir inherits the portfolio at a stepped-up ACB of $1,000,000 — equal to the fair market value at the date of death. This means the heir is not taxed again on the $600,000 gain that was already taxed on the terminal return. If the heir sells the portfolio the next day for $1,000,000, the capital gain is $0. Future gains are measured from the $1,000,000 cost base.
Planning Strategies: Reducing the Tax Hit Before Death
1. Maximize TFSA Contributions Every Year
Every dollar moved from non-registered to TFSA during your lifetime eliminates deemed disposition tax on that dollar at death. The 2026 TFSA cumulative limit is $102,000 for someone who has been eligible since 2009. A couple can hold $204,000 in TFSAs — sheltering that amount entirely from deemed disposition, income tax, and probate fees at death.
2. Gradually Realize Gains During Retirement
Instead of holding $600,000 in unrealized gains until death, sell securities gradually during retirement years when income is lower. Realizing $50,000 in capital gains per year for 12 years keeps each year's gain within the 50% inclusion tier and potentially in lower tax brackets. The total tax paid over 12 years is substantially less than paying tax on $600,000 compressed into a single terminal return.
3. Use Life Insurance to Fund the Tax Liability
A permanent life insurance policy with the estate as beneficiary provides tax-free proceeds to cover the capital gains tax bill without liquidating the portfolio. This preserves the full $1,000,000 portfolio for the heir — the insurance proceeds pay the $178,000 tax bill. The cost of the insurance premiums is weighed against the guaranteed tax liability at death.
4. Name a Spouse as Successor Holder on TFSAs
If you hold a TFSA, naming your spouse as successor holder (not beneficiary) ensures the TFSA transfers seamlessly — no tax, no probate, no loss of the surviving spouse's own TFSA room. Naming a beneficiary instead triggers a TFSA cessation that can create unexpected tax on growth between the date of death and distribution.
5. Ensure ACB Records Are Current and Accessible
The single most common source of overpaid tax on deemed disposition is incorrect ACB — usually understated because DRIP shares, return of capital adjustments, and corporate reorganizations were not tracked. Maintaining current ACB records (or using an ACB tracking service) during your lifetime saves the executor thousands of dollars in professional fees and ensures the estate does not overpay capital gains tax.
The Bottom Line
Dying with $1,000,000 in non-registered equities as a BC resident costs the estate approximately $191,450 in combined capital gains tax and probate fees — before legal and executor costs. The heir receives roughly 77–78 cents on the dollar. The spousal rollover defers the entire capital gains tax bill if the portfolio passes to a surviving spouse, but it does not eliminate it — the tax follows the portfolio and is triggered on the surviving spouse's death or sale.
The sharpest contrast is with a TFSA: $1M in a TFSA with a named successor holder passes to the surviving spouse completely tax-free — no deemed disposition, no probate, no terminal return inclusion. The $191,450 gap between the two structures is the cost of holding investments in the wrong account type at death.
For BC residents with large non-registered portfolios, the planning window is during your lifetime — not after death. Maximizing TFSA contributions, gradually realizing gains during low-income retirement years, maintaining accurate ACB records, and considering life insurance to fund the terminal tax bill are the most effective strategies for preserving wealth across generations. The executor who inherits a well-documented portfolio with current ACB records, clear beneficiary designations, and a funded tax strategy will settle the estate in months. The executor who inherits a portfolio with 20 years of untracked DRIP shares, missing T3 slips, and no ACB records will spend a year reconstructing the data — and may still overpay.
Frequently Asked Questions
Q:What is deemed disposition on death in Canada?
A:Deemed disposition on death is a rule under section 70(5) of Canada's Income Tax Act that treats the deceased as having sold all capital property at fair market value immediately before death. It applies to non-registered investment accounts, real estate (other than a principal residence), and any other capital property. The capital gain — fair market value minus adjusted cost base — is reported on the deceased's terminal T1 return. Canada does not have an inheritance tax, but deemed disposition functions as a tax on unrealized gains that have accumulated during the deceased's lifetime. For a BC resident with $1M in non-registered equities and a $400,000 ACB, this triggers a $600,000 capital gain, with approximately $175,000 to $192,000 in combined federal and BC provincial tax depending on other terminal-year income.
Q:How much are BC probate fees on a $1M estate in 2026?
A:British Columbia charges probate fees (officially called 'probate grant fees') on the gross value of the estate that passes through probate. The rate is $0 on the first $25,000, $6 per $1,000 on value between $25,001 and $50,000, and $14 per $1,000 on value above $50,000. On a $1,000,000 non-registered portfolio: ($25,000 × $0) + ($25,000 × $6/1,000) + ($950,000 × $14/1,000) = $0 + $150 + $13,300 = $13,450. Probate fees apply to the gross value of the portfolio — not the net value after capital gains tax. This means the estate pays probate fees on the full $1M even though approximately $175,000 to $192,000 will go to CRA for capital gains tax. Assets held jointly with right of survivorship, assets with named beneficiaries (like life insurance and registered accounts), and assets held in certain trust structures can bypass probate entirely.
Q:Does the spousal rollover apply to non-registered investment accounts?
A:Yes. Section 70(6) of the Income Tax Act provides an automatic rollover of capital property to a surviving spouse or common-law partner at the deceased's adjusted cost base, deferring all capital gains tax. For a $1M non-registered portfolio with a $400,000 ACB, the spousal rollover means the surviving spouse inherits the portfolio at $400,000 ACB — no deemed disposition, no capital gains tax on the terminal return, and no $175,000+ tax bill. The tax is deferred until the surviving spouse either sells the securities or dies, at which point their own deemed disposition is triggered. The executor can elect OUT of the rollover on individual securities by filing a designation with the terminal return. This can be strategic: if the deceased has unused capital losses, personal tax credits, or low other income, triggering some gains on the terminal return may be more tax-efficient than deferring everything to the surviving spouse's future death.
Q:What is the difference between dying with $1M in a TFSA versus non-registered?
A:The tax difference is stark. A $1M non-registered portfolio triggers deemed disposition at death: approximately $175,000 to $192,000 in capital gains tax on the terminal return (assuming $400,000 ACB), plus $13,450 in BC probate fees on the gross value. The heir receives approximately $795,000 to $812,000 after tax and probate. A $1M TFSA with a named successor holder transfers the entire balance tax-free — no deemed disposition, no capital gains tax, no income inclusion on the terminal return. The successor holder receives $1,000,000 and the TFSA continues in their name with no loss of their own TFSA contribution room. If a TFSA names a beneficiary instead of a successor holder, the FMV at death is still tax-free, but any growth between the date of death and the date of distribution becomes taxable to the beneficiary. The net difference between the two structures can exceed $190,000 — which is why maximizing TFSA contributions during your lifetime is one of the most effective estate planning strategies available to Canadians.
Q:How does an executor track ACB for deemed disposition on death?
A:The executor must reconstruct the adjusted cost base (ACB) for every security in the non-registered account to calculate the deemed disposition gain accurately. ACB is not simply the original purchase price — it must be adjusted for: (1) all additional purchases of the same security (averaged across all units held), (2) reinvested distributions (DRIP shares increase ACB), (3) return of capital distributions (which reduce ACB), (4) corporate reorganizations, stock splits, and mergers (which may reallocate ACB across successor securities), and (5) superficial loss adjustments if the deceased bought and sold the same security within 30 days. Brokerage firms provide average cost data on statements, but this is often unreliable — especially for accounts held for 20+ years, or securities that went through corporate actions. The executor should request historical transaction records from the brokerage, cross-reference with T3 and T5 slips showing return of capital, and consider hiring a tax professional for complex portfolios. CRA can reassess if ACB is calculated incorrectly — overstating ACB understates the gain and underpays tax.
Q:Can capital losses on the terminal return offset deemed disposition gains?
A:Yes. If the deceased's non-registered portfolio includes securities that have declined in value, those deemed disposition losses can offset the deemed disposition gains on the same terminal return. Additionally, the terminal return has a special rule: net capital losses from the terminal year, and any unused capital loss carryforwards from prior years, can be applied against ANY income on the terminal return — not just capital gains. This is different from normal years, where capital losses can only offset capital gains. For example, if the $1M portfolio includes $800,000 in gains and $200,000 in losses, the net deemed disposition gain is $600,000. If the deceased also had $50,000 in unused capital loss carryforwards from prior years, those can offset $50,000 of the terminal-year gain (or other income), reducing the taxable amount further. The executor should review all prior-year tax returns for any unclaimed capital losses before filing the terminal return.
Question: What is deemed disposition on death in Canada?
Answer: Deemed disposition on death is a rule under section 70(5) of Canada's Income Tax Act that treats the deceased as having sold all capital property at fair market value immediately before death. It applies to non-registered investment accounts, real estate (other than a principal residence), and any other capital property. The capital gain — fair market value minus adjusted cost base — is reported on the deceased's terminal T1 return. Canada does not have an inheritance tax, but deemed disposition functions as a tax on unrealized gains that have accumulated during the deceased's lifetime. For a BC resident with $1M in non-registered equities and a $400,000 ACB, this triggers a $600,000 capital gain, with approximately $175,000 to $192,000 in combined federal and BC provincial tax depending on other terminal-year income.
Question: How much are BC probate fees on a $1M estate in 2026?
Answer: British Columbia charges probate fees (officially called 'probate grant fees') on the gross value of the estate that passes through probate. The rate is $0 on the first $25,000, $6 per $1,000 on value between $25,001 and $50,000, and $14 per $1,000 on value above $50,000. On a $1,000,000 non-registered portfolio: ($25,000 × $0) + ($25,000 × $6/1,000) + ($950,000 × $14/1,000) = $0 + $150 + $13,300 = $13,450. Probate fees apply to the gross value of the portfolio — not the net value after capital gains tax. This means the estate pays probate fees on the full $1M even though approximately $175,000 to $192,000 will go to CRA for capital gains tax. Assets held jointly with right of survivorship, assets with named beneficiaries (like life insurance and registered accounts), and assets held in certain trust structures can bypass probate entirely.
Question: Does the spousal rollover apply to non-registered investment accounts?
Answer: Yes. Section 70(6) of the Income Tax Act provides an automatic rollover of capital property to a surviving spouse or common-law partner at the deceased's adjusted cost base, deferring all capital gains tax. For a $1M non-registered portfolio with a $400,000 ACB, the spousal rollover means the surviving spouse inherits the portfolio at $400,000 ACB — no deemed disposition, no capital gains tax on the terminal return, and no $175,000+ tax bill. The tax is deferred until the surviving spouse either sells the securities or dies, at which point their own deemed disposition is triggered. The executor can elect OUT of the rollover on individual securities by filing a designation with the terminal return. This can be strategic: if the deceased has unused capital losses, personal tax credits, or low other income, triggering some gains on the terminal return may be more tax-efficient than deferring everything to the surviving spouse's future death.
Question: What is the difference between dying with $1M in a TFSA versus non-registered?
Answer: The tax difference is stark. A $1M non-registered portfolio triggers deemed disposition at death: approximately $175,000 to $192,000 in capital gains tax on the terminal return (assuming $400,000 ACB), plus $13,450 in BC probate fees on the gross value. The heir receives approximately $795,000 to $812,000 after tax and probate. A $1M TFSA with a named successor holder transfers the entire balance tax-free — no deemed disposition, no capital gains tax, no income inclusion on the terminal return. The successor holder receives $1,000,000 and the TFSA continues in their name with no loss of their own TFSA contribution room. If a TFSA names a beneficiary instead of a successor holder, the FMV at death is still tax-free, but any growth between the date of death and the date of distribution becomes taxable to the beneficiary. The net difference between the two structures can exceed $190,000 — which is why maximizing TFSA contributions during your lifetime is one of the most effective estate planning strategies available to Canadians.
Question: How does an executor track ACB for deemed disposition on death?
Answer: The executor must reconstruct the adjusted cost base (ACB) for every security in the non-registered account to calculate the deemed disposition gain accurately. ACB is not simply the original purchase price — it must be adjusted for: (1) all additional purchases of the same security (averaged across all units held), (2) reinvested distributions (DRIP shares increase ACB), (3) return of capital distributions (which reduce ACB), (4) corporate reorganizations, stock splits, and mergers (which may reallocate ACB across successor securities), and (5) superficial loss adjustments if the deceased bought and sold the same security within 30 days. Brokerage firms provide average cost data on statements, but this is often unreliable — especially for accounts held for 20+ years, or securities that went through corporate actions. The executor should request historical transaction records from the brokerage, cross-reference with T3 and T5 slips showing return of capital, and consider hiring a tax professional for complex portfolios. CRA can reassess if ACB is calculated incorrectly — overstating ACB understates the gain and underpays tax.
Question: Can capital losses on the terminal return offset deemed disposition gains?
Answer: Yes. If the deceased's non-registered portfolio includes securities that have declined in value, those deemed disposition losses can offset the deemed disposition gains on the same terminal return. Additionally, the terminal return has a special rule: net capital losses from the terminal year, and any unused capital loss carryforwards from prior years, can be applied against ANY income on the terminal return — not just capital gains. This is different from normal years, where capital losses can only offset capital gains. For example, if the $1M portfolio includes $800,000 in gains and $200,000 in losses, the net deemed disposition gain is $600,000. If the deceased also had $50,000 in unused capital loss carryforwards from prior years, those can offset $50,000 of the terminal-year gain (or other income), reducing the taxable amount further. The executor should review all prior-year tax returns for any unclaimed capital losses before filing the terminal return.
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