04/29/2026
Deemed Disposition: The Tax Event Many Property Owners Don’t See Coming
When most people think about taxes on real estate, they assume the bill comes when the property is sold. In many cases, that’s true, but not always. In Canada, there is a rule called deemed disposition. In simple terms, when someone passes away, the government generally treats their capital assets as if they were sold at current market value, whether or not a sale actually takes place. That means any increase in value over the years may trigger a capital gain, which is reported on the final tax return.
Let’s look at an example. A property purchased for $300,000 and valued at $1,200,000 at the time of death would result in a $900,000 capital gain. Under current rules, 50% of that gain is taxable, meaning $450,000 would be added to income for tax purposes. If the property was used as a rental and depreciation (CCA) was claimed over the years, there may also be recapture, which is fully taxable.
Cottages often fall into a grey area. While they can qualify for the principal residence exemption, a family can generally only designate one property per year. In many cases, that exemption is applied to the primary home, leaving the cottage partially or fully exposed to capital gains tax. Because these properties are often held for many years, the accumulated gain can be substantial.
The tax is typically settled through the estate as part of the final return. The property itself may pass on to heirs at the updated market value, which can be beneficial for future tax purposes. However, if there isn’t enough cash available in the estate to cover the tax, decisions may need to be made, whether that means selling the property or arranging funds to keep it.
Owning real estate long-term can build significant equity, but it can also create a future tax consideration that’s easy to overlook. For many property owners, especially those with rentals or recreational properties, it’s worth having a conversation with an accountant or estate planner. Understanding the numbers ahead of time allows for better decisions down the road.
Real estate remains one of the strongest wealth-building tools, but like any investment, it comes with responsibilities. Sometimes the most important tax event isn’t when you sell, it’s when you don’t.
By Tibor Bogdan
Century 21 Creekside Rlt
