Life Estate, Tax at Death & Business Needs question: owns non-registered shares with an adjusted cost base

LifeEstate, Tax at Death & Business Needs

Walter, 71, a widower, owns non-registered shares with an adjusted cost base of $90,000 and a fair market value of $250,000. His will leaves them to his two adult sons. Assume the 2026 capital gains inclusion rate and that the gain is taxed at 45% on his final return. How much tax will the shares trigger at his death?

A $36,000
B $48,000
C $72,000
D $112,500

Show the answer and explanation

Answer: A. $36,000

Under s. 70(5) Walter is deemed to sell the shares at fair market value immediately before death: gain $250,000 − $90,000 = $160,000. Half is taxable (s. 38(a); the proposed increase to two-thirds was cancelled and the 2025 and 2026 rate is 1/2): $80,000 × 45% = $36,000. $48,000 uses the two-thirds rate that never took effect, $72,000 taxes the whole gain, and $112,500 taxes the full value rather than the gain. Source: Income Tax Act, RSC 1985, c. 1 (5th Supp.), s. 70(5)(a) (current to 21 Sep 2026; as at 12 Oct 2026); Income Tax Act s. 38(a) (1/2 inclusion; current to 21 Sep 2026); CRA Guide T4037 Capital Gains 2025 (inclusion rate 50% for 2025; as at 12 Oct 2026).

Common mistake

Applying the cancelled two-thirds inclusion rate or taxing the whole gain.

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Original study material mapped to the public CISRO curriculum; not a real test question.Not affiliated with CISRO, CCIR or any provincial insurance regulator. Verify figures and rules against current guidance before relying on them.