When Do You Have a “Deemed Disposition” for Tax Purposes?

Under certain circumstances, taxation rules state that a transfer of property has occurred, even without a purchase or sale.

A deemed disposition occurs when:

  • One asset is exchanged for another.
  • Assets are given as gifts.
  • The property is stolen, destroyed, expropriated or damaged.
  • Shares held by the taxpayer are converted, redeemed or cancelled.
  • An option to acquire or dispose of property expires.
  • A debt owed to the taxpayer is settled or cancelled.
  • Property is transferred to a trust.
  • The owner of the property emigrates from Canada, becoming non-resident
  • The owner changes the use of the asset from business to personal (and vice versa).
  • The owner dies (the disposition is considered to have taken place immediately prior to death).

Fair market valuation. In the dispositions above the FMV is determined as the price a stranger (unrelated to the taxpayer) would pay for an asset on the open market. To get that value, it’s important to see appraisals or listings of similar assets sold recently on the open market.

Valuation days. Due to the history of the taxation of capital gains in Canada, numerous valuation days for various assets may also be used as proceeds of disposition. For example, capital gains were not taxable at all prior to 1972, so valuation was required at that time.

Excerpted from Jacks on Tax. © Knowledge Bureau, Inc. All rights reserved.