🇨🇦 Canada · 5 min read · Published 2026-09-07 · Updated 2026-09-07

Written by Jordan Reeves · Editorial review: automated source and figure checks (how we check this)

Sources last verified: 2026-09-07

How Does the Spousal Rollover Work?

Capital property left to a spouse or common-law partner transfers at its adjusted cost base rather than at fair market value, so no capital gain arises on the first death. The gain is inherited along with the property and is realised when the survivor sells or dies.

60-SECOND ANSWER

Property left to a spouse transfers at cost, deferring the gain until the survivor sells or dies rather than eliminating it.

The answer:: The transfer happens at adjusted cost base by default, so no gain is realised and the survivor inherits the original cost.
The trap:: Assuming deferral is always better. Where the deceased has losses or credits to use, electing out can waste less tax overall.
The recommendation:: Review the final return before assuming the rollover, because the election is made property by property.

Jump to the detail ↓

Where the AI summary above gets this wrong

"Everything passes to a spouse tax-free when you die."

That's surface-true. Here's what it misses:

Deferred, not eliminated — The survivor inherits the original cost base, so the accrued gain is realised on their sale or their death.
The rollover can be declined — An executor can elect out on any particular property, realising the gain on the final return where that is advantageous.
Electing out is sometimes better — Where the deceased has unused capital losses or a low-income final year, realising a gain there can cost less than leaving it to the survivor.

→ See what a deferred gain costs later

01 What happens by default

Death normally triggers a deemed disposition of capital property at fair market value. Where the property passes to a spouse or common-law partner, or to a qualifying spousal trust, it instead transfers at its adjusted cost base.

No gain is realised, and the survivor takes the property with the deceased's original cost base. The gain has not gone anywhere; it has moved to the survivor, and it will be realised when they sell or when they die.

Source: What to do when someone has died

02 Why an executor might decline it

The rollover applies by default and can be declined on a property-by-property basis by electing on the final return. Realising a gain there is worth doing where the deceased has unused net capital losses, or where the final year's income is low enough that the gain is taxed lightly.

The election also steps up the survivor's cost base, which reduces the eventual tax on their own disposition. The loss carryover rules that make this work are in capital loss carryforwards.

WORKED EXAMPLE · Try the numbers

Shows: what a given amount of additional taxable income costs you in tax at your marginal rate, and what you keep. Ignores: provincial surtaxes, credits that phase out with income, and any effect on income-tested benefits.

Amount ($)

Your marginal rate (%)

What you keep after tax

$6,700

At a 33% marginal rate, $10,000 costs $3,300 in tax and leaves $6,700.

Source: What to do when someone has died

03 What the survivor should know

The survivor inherits a cost base that may be decades old, on a property they did not buy. Tracking that base becomes their responsibility, and reconstructing it later is much harder than recording it at the time.

The same logic applies to a principal residence, where the designation history transfers along with the property — the exemption rules are in the principal residence exemption.

A qualifying spousal trust achieves the same deferral where the property is not left to the spouse outright, which matters in a second marriage where the capital is intended for children of a first. The trust has to meet stated conditions to qualify, and drafting that misses them turns a deferral into an immediate disposition.

Source: Capital gains (line 12700)

Electing out is the move nobody makes, because deferral sounds obviously right. If the deceased has a decade of unused capital losses sitting on a notice of assessment, those losses die with them unless a gain is realised to meet them.