Mr. Chen, a 70-year-old resident of Ontario, owns a fully depreciated rental property in Toronto with a fair market value (FMV) of $1,200,000 and an Adjusted Cost Base (ACB) of $300,000. He also owns a mutual fund portfolio with an FMV of $500,000 and an ACB of $400,000. Mr. Chen is married to Mrs. Chen, who is 68. If Mr. Chen passes away, what are the capital gains implications if his Will directs all his assets to his estate, and there is no spousal rollover provision for the rental property?

Question: Mr. Chen, a 70-year-old resident of Ontario, owns a fully depreciated rental property in Toronto with a fair market value (FMV) of $1,200,000 and an Adjusted Cost Base (ACB) of $300,000. He also owns a mutual fund portfolio with an FMV of $500,000 and an ACB of $400,000. Mr. Chen is married to Mrs. Chen, who is 68. If Mr. Chen passes away, what are the capital gains implications if his Will directs all his assets to his estate, and there is no spousal rollover provision for the rental property?

Answer options: ✅ A capital gain of $900,000 on the rental property and $100,000 on the mutual funds will be realized at death, with no spousal rollover possible.

• Only a capital gain of $100,000 on the mutual funds will be realized, as the rental property generally passes tax-free.
• All assets will be deemed to be disposed of at their ACB, resulting in no capital gains at death.
• A capital gain of $1,200,000 on the rental property and $500,000 on the mutual funds will be realized.

Correct answer: A capital gain of $900,000 on the rental property and $100,000 on the mutual funds will be realized at death, with no spousal rollover possible.

Explanation: Upon death, assets are generally deemed to be disposed of at their Fair Market Value, triggering capital gains. For the rental property, the gain is $1,200,000 (FMV) - $300,000 (ACB) = $900,000. For mutual funds, the gain is $500,000 - $400,000 = $100,000. Without a spousal rollover, these gains are immediately taxable.