A deemed disposition is a rule that treats a taxpayer as having sold property at fair market value even though no actual sale has occurred, triggering recognition of any accrued capital gain or loss. The Income Tax Act applies deemed dispositions in several situations.
- On death, most capital property is treated as sold immediately before death.
- When a taxpayer ceases to be a Canadian resident, most property is treated as sold on departure.
- Every twenty-one years, most trusts are treated as having sold their capital property.
- On a change in use of property between personal and income-earning purposes.
Because a deemed disposition can create a tax liability without producing cash, planning often focuses on deferral, rollovers, or arranging liquidity to fund the resulting tax.