Sorry - yes fair comment; I was thinking more about the DD being moot from a tax perspective.
It’s unclear whether CRA would actually care about an unreported dispostion in this circumstance, but technically, yes, should be reported at ACB.
You don’t report deemed disposition for asset that transfer tax deferred.
The surviving spouse assumes the deceased spouse’s ACB by the operation of 70(6) and you only report deemed disposition when executor elects out of the spousal rollover perhaps to take advantage of tax attributes that may move asset at step up ACB to the surviving spouse.
If the necessary conditions specified in ITA are right, spousal rollover is automatic and no need to report DD on deceased’s return.
FA.
Yes I stand corrected. Technically there is a deemed disposition but because the rollover is automatic, I’ve never reported it unless I’m opting out.
i had one instance where I opted out of the roll over after the fact in an adjustment request to the final return. It was accepted without issue.
I am nervous any time I do a Deceased return. I guess i should not be doing any unless there are no assets at time of death, other than a bank account.
It’s for the benefit of the client, because it’s a requirement for the application.
Thanks to everyone for the discussion on the DD piece of the original post. I originally under estimated the reporting required on the final return in light of an automatic spousal rollover and also in light of the legal ownership entailed with JTWROS assets. That was until I ran into what @abechew309 posted from CRA’s website on deceased taxpayer returns. They aren’t particularly clear and leave it wide open with instructing “the disposition of the person’s property or assets will still need to be reported”. I suppose this is intended to be a tool they may look at when assessing the surviving spouse’s future tax filings and ultimately their final return. I certainly would not look forward to spending time engaging in any kind of verification process on a DD/spousal roll-over disclosure on sch 3 simply because of reporting it the way they wish nor explaining any changes in ACB the surviving spouse’s assets may have in the future.
Umm…ok. In my 35 years of filing these, I’ve almost never had to submit any “supplemental information”. Most of what you listed is usually detailed in the will, which is usually submitted to CRA long before a TX19. So, in my experience, the TX19 is a very simple final step, after which CRA sends a letter to the estate saying basically, “This is the clearance certificate…nothing else is owing…everything is complete.”
The information is not listed in the will. The beneficiary information includes current addresses and SIN if they have them, which are not in the will. The list of assets is specific and includes fair values at the time of death. The estate accounting obviously is not detailed in the will, since it’s all transactions that occur after death.
If you’ve only ever done extremely simple final returns, you could get away without this information. But in my experience working in the tax department of a national firm, it absolutely is information that should be included in the application.
It doesn’t make any sense to me that we have to spend all kinds of billable time for an automatic rollover. There is no tax owing and since we have to elect for 70(6) not to apply, what is going to happen if nothing is reported?
Is there a penalty provision for not reporting the deemed disposition?
courtesy of AI:
To make a valid spousal rollover election under subsection 70(6) of the Canadian Income Tax Act, the deceased taxpayer’s legal representative must transfer qualifying capital property to a surviving spouse or spousal trust and report it properly on the final terminal tax return, noting that missing original deadlines triggers late-filing penalty rules. [1, 2, 3, 4, 5]
How to Make the Section 70(6) Rollover
- Qualifying Transfer: Ensure the property goes to a spouse, common-law partner, or a qualified trust resident in Canada.
- Vesting Rules: The property must vest indefeasibly in the spouse or trust within 36 months of death (unless an extension is granted).
- Filing the Return: The legal representative claims the rollover directly inside the deceased person’s final T1 income tax return for the year of death. Note that unlike opt-out elections (such as 70(2) or 70(6.2)), a standard 70(6) rollover applies automatically by reporting the transfer at the adjusted cost base (ACB) rather than fair market value, provided the conditions are met. [1, 2, 3, 4, 5]
Late Filing and Penalty Provisions
- Late Requests: If you miss the filing deadline or need to adjust/late-file a related deceased tax election with the Canada Revenue Agency (CRA), you must submit the request under taxpayer relief guidelines. [1]
- Penalty Calculation: If the CRA accepts a late-filed or amended election request, a penalty applies. The penalty is equal to the lesser of:
- Payment Requirement: The estimated penalty amount must be calculated and paid to the CRA alongside the late request submission; otherwise, the CRA will not process or adjust the return. [1]
Also, the drawback by not doing the work now by reporting the transfer at ACB is that you will have to determine the ACB later, when it may well be harder to find or establish.
I might have worded my post wrong.
These are penalties for a late election for the automatic rollover not to apply.
The rollover at ACB instead of FMV is automatic and no election is necessary. The issue I am wondering about is when we do no want to elect [for the automatic rollover to apply] and therefore have the rollover at ACB if there are any penalties if we don’t report the deemed disposition on the Final Tax Return.
Since:
All Capital Dispositions that result in a gain or a loss are required by the Act and Regulations to be reported. CRA interprets this as referring to all Capital Dispositions.
If a tax preparer/taxpayer fails to report a Capital Disposition because they did not know any better or couldn’t be bothered, I imagine that could mean that Section 163(2) (gross negligence) probably applies.
Gross negligence comes into play when you knowingly misrepresent income. There is no income. And the penalties are based on tax avoided. There is no tax and there is no election.
One doesn’t have to report the deemed disposition of a principal residence either if it rolls over to the spouse.
Why have I never heard about CRA charging penalties for this. It seems to me it is an internal policy to not worry about this. The rollover is automatic. And it seems to me this is a financial burden on a surviving spouse if we are supposed to figure out the ACB of all the assets with no tax consequences.
And including when a taxpayer does not file an income tax return in compliance with the Income Tax Act.
ITAs do not work in isolation. Folios, regulation and decided cases guide how operation of 70(6) should work.
Automatic rollover does not require reporting deemed disposition at ACB.
Once the qualifying conditions are met, automatic rollover applies.
I am in agreement with @Rein.
I agree as well. The ITA is the law but it’s CRA’s administrative policies that determine how and when an election is considered received and ultimately accepted. Some elections have to be paper mailed to be considered received while others kept on file by the taxpayer. This election is automatic and I have never seen a penalty assessed for failure to put 0 on schedule 3. Do the line by line details even get transmitted through EFILE or do they just see the total?
There’s nothing more certain in life than death and taxes!
These appear to be the penalties for late file principal residence elections. The downside of AI - Information is often out of context! It’s good news for us though because it keeps us employed! 
Clearly there are some on this forum who may be preparing income tax returns according to how they wish the income tax act was worded, instead of according to how it actually is worded.
Such a situation would be unfortunate for client taxpayers, who perhaps believe that their tax returns are being prepared according to income tax law.
I would encourage everyone to carefully re-read and check on the income tax act wording itself, and then go by that.
@abechew309 I’d be curious to see ONE instance where a penalty was applied and supported in Court where no income difference and no tax difference existed. I was unable to find any at all. (Obviously excluding non-file of T-slips and other mundane items.)
@SmallBizGuy
You want only “ONE” instance when somebody was caught filing an incorrect tax return?
Nobody is going to go to court for $100 (Unless it involves one of the $8,000 late filing potential issues)