Transferring Assets at Death: Spousal Rollovers – A Complete Guide by a Montreal CPA Firm Near You

Introduction

When a Canadian taxpayer dies, the Income Tax Act triggers a deemed disposition of all capital property—meaning the deceased is considered to have sold all assets at fair market value immediately before death. This can create large capital gains and a significant final tax bill. However, Canada offers one of the most important estate-planning tools available: the spousal rollover. This rule allows assets to pass tax-free to a surviving spouse or common-law partner, deferring tax until the spouse later sells or passes away. Understanding how spousal rollovers work is essential for minimizing taxation at death, protecting family wealth, and ensuring smooth estate administration.

Legal and Regulatory Framework

Spousal rollover rules are outlined in section 70(6) of the Income Tax Act. When assets are transferred to a spouse, common-law partner, or qualifying spousal trust, the transfer occurs at the deceased’s adjusted cost base (ACB), not at fair market value. This defers all capital gains and recapture. Rollovers apply to: real estate, investments, shares of a business, private corporation shares, depreciable property, and even RRSPs and RRIFs. To qualify, the transfer must be to a spouse or common-law partner who is a Canadian resident at the time of transfer, or to a properly structured testamentary spousal trust meeting strict conditions.

Key Court Decisions

In Henderson Estate v. The Queen, the court confirmed that transfers to a spouse must meet the technical requirements of a rollover, including proper beneficiary designation and timing. In Somerville Estate v. Canada, CRA reassessed an estate for failing to document spousal rollover eligibility properly. In Kieboom v. Canada, the court clarified that rollovers must reflect economic substance and proper intent. These cases highlight the importance of documentation and precise execution in estate planning.

Why Spousal Rollovers Matter

Without the spousal rollover, the deemed disposition at death could trigger tens or even hundreds of thousands of dollars in tax, particularly if the deceased owned: rental properties, vacation homes, a share portfolio, a business, or farmland. By deferring tax, the rollover preserves family wealth, supports the surviving spouse financially, and prevents premature liquidation of assets. It also provides flexibility—tax is deferred, not eliminated, allowing the estate to manage future planning.

Assets That Qualify for Spousal Rollovers

1. Capital Property

Includes real estate, stocks, mutual funds, and non-depreciable business assets.

2. Depreciable Property

Buildings, equipment, vehicles, and other assets—rollovers defer capital gains and recapture.

3. RRSPs and RRIFs

These can transfer tax-free to a spouse if designated properly on beneficiary forms or via estate instructions.

4. Shares of a Private Corporation

Common in family businesses—rollovers preserve tax deferral until ownership changes.

5. Assets Held in Trust

If transferred via a qualifying testamentary spousal trust.

When Rollovers Do NOT Apply

Rollovers cannot be used when assets pass to children, siblings, parents, friends, or non-qualifying trusts. CRA denies rollovers when: the spouse is not a Canadian resident, the transfer is not direct, beneficiary designations are incorrect, or trust conditions fail to meet legal requirements. RRSP and RRIF rollovers require the spouse to be a named beneficiary or the estate to elect the rollover properly.

Spousal Trusts

A spousal trust (also called a testamentary spousal trust) allows assets to pass tax-free to a trust rather than directly to the spouse. To qualify: the spouse must be entitled to all trust income during their lifetime, no one else may use or access trust capital, and the trust must be created by the will. Spousal trusts offer creditor protection, control of assets, and long-term planning while still achieving the tax-free rollover.

RRSP and RRIF Rollovers

RRSPs and RRIFs are normally fully taxable at death unless rolled over. A rollover is possible when: the spouse is named beneficiary, the RRSP/RRIF transfers directly to the spouse’s RRSP/RRIF, or the estate elects the rollover using Form T2019. Without the rollover, the full value becomes income on the final return, often pushing the deceased into the highest tax bracket.

Common Problems That Break the Rollover

• Naming the estate instead of the spouse, without proper estate instructions

• Spouse not being a Canadian resident at death

• Assets left to children instead of spouse

• Incorrect will drafting or beneficiary designations

• Using joint ownership improperly

• Failing to designate RRSP/RRIF beneficiaries
  These errors can cost families significant tax.

Mackisen Strategy

At Mackisen CPA Montreal, we assist individuals, couples, and executors with optimal spousal rollover planning. We review wills, beneficiary designations, trust terms, RRSP/RRIF documentation, and property ownership structures to ensure assets qualify for the rollover. After death, we prepare all tax returns, apply rollover elections, calculate adjusted cost bases, and work alongside estate lawyers to administer rollovers correctly. Our approach prevents costly errors and minimizes tax.

Real Client Experience

A Montreal couple holding rental properties avoided a large tax bill when we structured a proper spousal trust. A widow inheriting RRIF assets avoided full taxation after we corrected beneficiary forms and filed the proper rollover election. An estate facing CRA review successfully maintained rollover status after we reconstructed documentation showing the spouse’s entitlement. A couple with complex corporate ownership preserved tax deferral through a carefully drafted rollover plan.

Common Questions

Does the rollover eliminate tax forever? No—tax is deferred until the spouse disposes of the property or passes away. Can a common-law partner qualify? Yes—if recognized under federal tax law. Can children receive rollover benefits? No—only spouses. Does a spousal trust count? Yes—if structured correctly.

Why Mackisen

With more than 35 years of combined CPA experience, Mackisen CPA Montreal ensures that families maximize tax deferral, protect wealth, and avoid costly mistakes when transferring assets at death. Whether planning ahead or administering an estate, we provide expertise, accuracy, and peace of mind.