This page gives information on the tax treatment of capital property the deceased owned at the date of death. It discusses capital property in general, as well as the particular treatment of depreciable and farm and fishing property. Only property acquired after December 31, 1971 is discussed.

There are special rules for property that a deceased person owned before 1972. For details about these rules and for information about other property such as resource property or an inventory of land, contact the CRA at 1-800-959-8281.

When a person dies, the CRA considers that the person has disposed of all capital property right before death. The CRA calls this a deemed disposition. This is applicable to all persons, regardless of where they reside.

Also, right before death, the CRA considers that the person has received the deemed proceeds of disposition (this will be referred to as deemed proceeds). Even though there was not an actual sale, there can be a capital gain or, except for depreciable property or personal-use property, a capital loss.

For depreciable property, in addition to a capital gain, there can be a recapture of capital cost allowance. Also, for depreciable property, instead of a capital loss there may be a terminal loss.

What is a capital gain?
When the proceeds or deemed proceeds of disposition of a capital property are more than its adjusted cost base, the result is a capital gain. In most cases, one-half of the capital gain is the taxable capital gain.

Use Schedule 3, Capital Gains (or Losses) in 2022, to calculate the taxable capital gain to report on the final return.

What is a capital gains deduction?
This is a deduction you can claim for the deceased person against eligible taxable capital gains from the disposition or deemed disposition of certain capital property.

You may be able to claim the capital gains deduction on taxable capital gains the deceased had in 2022 from any of the following:

• dispositions or deemed dispositions of qualified farm or fishing property
• dispositions or deemed dispositions of qualified small business corporation (QSBC) shares
• a reserve brought into income from either of the above

For more information, see Guide T4037, Capital Gains.

What is a capital loss?
When the proceeds or deemed proceeds of disposition of a capital property are less than its adjusted cost base, the result is a capital loss. One-half of the capital loss is the allowable capital loss. You cannot have a capital loss on the disposition of depreciable property or personal use property. However, you may have a terminal loss in respect of certain depreciable property. See the next section.

For more information on claiming a capital loss, see Net capital losses in the year of death.

Recaptures and terminal losses
For depreciable property, when the proceeds or deemed proceeds of disposition are more than the undepreciated capital cost, you will usually have a recapture of capital cost allowance. Include the recapture in income on the deceased's final return.

For depreciable property, when the proceeds or deemed proceeds of disposition are less than the undepreciated capital cost, the result is a terminal loss. Deduct the terminal loss on the deceased's final return.

For more information about a recapture of capital cost allowance or a terminal loss, see Income Tax Folio S3‑F4‑C1, General Discussion of Capital Cost Allowance.

Forms and publications

• Guide T4011, Preparing Returns for Deceased Persons
• Guide T4037, Capital gains
• Schedule 3, Capital Gains (or Losses)
• Income Tax Folio S3-F4-C1, General Discussion of Capital Cost Allowance

Related topics

• Line 25400 – Capital gains deduction