I am trying to determine how to value assets for deemed disposition on death when being transferred to a spouse. I remember learning at some point in a tax course that assets could be transferred at ACB or FMV or any amount in between. Now when I look this up I see ACB OR FMV but no other amount. Have I imagined that “any amount in between” ACB or FMV would be allowed or is that actually correct?
What kind of assets are you referring to here? This is yet another broad discussion that entails a detailed case-by-case study.
When someone dies, they are deemed to have disposed of their assets at the fair market value at the time of death. The assets are reported on the taxpayers terminal T1 return, and the FMV then becomes the new ACB of that property (subject to testamentary treatment of an ongoing estate).
Generally, assets are transferred to the surviving spouse at their adjusted cost basis, and not at the FMV at death. However, there are various tax treatments depending on the types of assets (i.e. title interest of real property that was held at the date of death (Section 73(1) rollover and all that good stuff, cash, portfolio investments, various foreign properties, etc.)).
Your assumption of “anything in between” is vastly incorrect.
Can’t dive into it any further without seeing the entire picture.
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The default on spousal transfers upon death is that the ‘deemed disposition at FMV’ rule does NOT apply, and non-registered assets transfer at ACB. However, the executor preparing the terminal return (which is usually the surviving spouse) may elect to include any portion of these deferred capital gains in the terminal return.
We do this to make use of capital losses carried forward, non-refundable tax credits, or simply a lower marginal tax rate that the surviving spouse will not have available in the future. It is a significant planning opportunity for many estates, but there are too many variables to itemize in this forum.
With non-registered investments, you need to be careful, though. Brokerages transfer the assets to the spouse’s account at cost (book value). Subsequent T5008s will report the gain/loss based on the original ACB. If you make this election, you need to keep track of the ACB-bump you claimed, and allocate it to the spouse’s returns as the specific assets are disposed.
Some brokers will record your ‘elected ACB’ in the spouse’s account, fixing their subsequent T5008’s and your tracking problem. However, I’ve found most won’t, and many that do, do it incorrectly.
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The ability to elect a transfer between cost and FMV is available in some transfers of eligible farm property (such as from a parent to a child upon death of the parent). Otherwise, as has been already mentioned, you can elect on a share-by-share basis with investments, to elect to realize a capital gain or loss on the final return of the deceased.