Mr. Henderson, 80, has a significant RRIF ($1.5 million) with his spouse, Mrs. Henderson, 78, named as the successor annuitant. In addition, his will states that his two adult children are the beneficiaries of his non-registered investment portfolio ($1 million, ACB $400,000). Mr. Henderson passes away. What is the total estimated taxable capital gain that will be reported in Mr. Henderson's terminal tax return assuming no other preferred elections or assets?

Question: Mr. Henderson, 80, has a significant RRIF ($1.5 million) with his spouse, Mrs. Henderson, 78, named as the successor annuitant. In addition, his will states that his two adult children are the beneficiaries of his non-registered investment portfolio ($1 million, ACB $400,000). Mr. Henderson passes away. What is the total estimated taxable capital gain that will be reported in Mr. Henderson's terminal tax return assuming no other preferred elections or assets?

Answer options:

• $0, as the capital property is inherited through the will and the RRIF rolls over tax-free. ✅ $300,000, representing the taxable portion of the capital gain on the non-registered portfolio.
• $600,000, representing the full capital gain on the non-registered portfolio.
• $750,000, representing part of the RRIF and the non-registered portfolio.

Correct answer: $300,000, representing the taxable portion of the capital gain on the non-registered portfolio.

Explanation: The RRIF rolls over to the surviving spouse tax-deferred, so no income inclusion from the RRIF is on the terminal return. For the non-registered investment portfolio, a deemed disposition occurs at death. The capital gain is $1,000,000 (FMV) - $400,000 (ACB) = $600,000. The taxable capital gain is 50% of this, which is $300,000.