What is deemed disposition in Canada?

For many Albertans, the family home is their largest capital asset. Understanding how the Canada Revenue Agency treats that asset on death is essential for estate planning and for executors managing a Calgary home sale.

The deemed disposition rule

Section 70 of the Income Tax Act provides that immediately before death, a taxpayer is deemed to have disposed of all capital property for proceeds equal to the fair market value (FMV) at that date. This is the "deemed disposition." The estate then reports any resulting capital gain on the deceased's terminal year T1 tax return.

How the capital gain is calculated

The capital gain equals the FMV at death minus the adjusted cost base (ACB). For a home purchased in 1998 for $275,000 and worth $950,000 at date of death in 2026, the gain is $675,000. Fifty percent of that ($337,500) is the taxable capital gain, included in the deceased's terminal return income and taxed at their marginal rate.

Role of the Principal Residence Exemption

The Principal Residence Exemption (PRE) can shelter some or all of this gain. If the deceased ordinarily inhabited the home as their principal residence in every year of ownership, the entire gain is exempt. The +1 rule in the PRE formula means even a property bought and sold (or deemed sold at death) in the same year qualifies for full exemption.

The PRE designation must be filed on the deceased's terminal year T1 return — not on the estate's T3 return. This is a common mistake that results in unnecessary tax.

When the estate later sells for more than FMV at death

The FMV at date of death becomes the estate's ACB. If the estate later sells the home for more than that FMV — because the market has risen during the estate administration — the additional gain is an estate capital gain, reported on the estate's T3 return. This is why minimizing the time between death and sale can reduce the estate's total tax burden.

Importance of an accurate FMV at death

Establishing a defensible FMV at date of death requires professional evidence — ideally a contemporaneous appraisal by an Appraisal Institute of Canada member. Ryan provides a written comparative market analysis at date of listing that the estate accountant can use as supporting evidence for the FMV determination.

Frequently asked questions

Is there capital gains tax on a home when someone dies in Alberta?

Potentially, yes. The deceased is deemed to have sold all capital property at fair market value on the date of death. However, if the home was the deceased's principal residence in every year of ownership, the Principal Residence Exemption can eliminate the capital gain entirely.

Who pays the capital gains tax on a home at death?

The capital gain from deemed disposition is reported on the deceased's terminal year T1 tax return. The estate is responsible for paying this tax from estate assets before distributing anything to beneficiaries.

What is the difference between deemed disposition and the actual sale of the estate home?

Deemed disposition happens at death and sets the estate's adjusted cost base (ACB) at the FMV on that date. When the estate later sells the home, any additional gain above the FMV at death is a separate capital gain on the estate's T3 return. Both events may generate tax — but the PRE can shelter the deemed disposition gain.

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This page is for general information only and does not constitute legal or tax advice. Consult a qualified Alberta lawyer or accountant for advice specific to your situation.