Upon the death of a taxpayer, Canada Revenue Agency generally deems them to have disposed of all capital property immediately before death at its fair market value. What is the primary purpose of this 'deemed disposition at death' rule?

Question: Upon the death of a taxpayer, Canada Revenue Agency generally deems them to have disposed of all capital property immediately before death at its fair market value. What is the primary purpose of this 'deemed disposition at death' rule?

Answer options:

• To allow the estate to avoid probate fees on capital assets. ✅ To ensure that capital gains accrued during the deceased's lifetime are subject to taxation.
• To facilitate the smooth transfer of assets to beneficiaries without tax implications.
• To reduce the administrative burden on the executor of the estate.

Correct answer: To ensure that capital gains accrued during the deceased's lifetime are subject to taxation.

Explanation: The deemed disposition at death rule is primarily an anti-avoidance rule. It ensures that any unrealized capital gains that have accumulated on capital property during the deceased taxpayer's lifetime are brought to account for tax purposes, preventing them from escaping taxation permanently.