A deemed disposition is a term used when a person is considered to have disposed of a property, even though a sale of that property has not taken place. This can happen when an individual passes away or when there has been a change-in-use of a property. For example, an owner that changes the use of their home from a living space to a rental property has a deemed disposition as there has been a change to what the property is used for. Depending on the situation, CRA may require you to pay income tax when a deemed disposition occurs.
A capital gain occurs when there is a sale of property, other than what you have deemed to be your principal residence. To determine the capital gain, several factors are taken into consideration, such as, the original cost base and any renovations made to the property over the course of ownership. Often, half of a capital gain is taxable. The amount owing because of a capital gain is dependant on other sources of income, deductions, and credits.
Dely & Associates can help you plan for a deemed disposition and capital gains.