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Tax Implications of Transferring Capital Property into a Trust

If I transfer capital property into a trust will it be subject to capital gains tax and/or recaptured depreciation?

That depends. Generally speaking, when you transfer capital property into a trust you are deemed to have disposed of it at fair market value. This triggers the payment of any unrealized capital gains and/or recaptured depreciation. The exception to this is when capital property is transferred to one of the following three types of trusts on a rollover basis:

• a spousal trust;
• an alter ego trust; or
• a joint spousal or common-law partner trust.

Unless the taxpayer elects otherwise, when capital property is transferred to one of the above three kinds of trusts, it is automatically assumed to be transferred on a tax-deferred basis. This is often referred to as a rollover. In some cases, it may be beneficial for a taxpayer to opt out of a rollover and instead deal with the tax consequences immediately. This is especially true if the taxpayer has the ability to shelter his or her gain or utilize one of the enhanced capital gains deductions available for qualified farm or fishing property or small business corporation shares. If you are considering transferring capital property to a trust you should consult a professional to determine the tax implications specific to your circumstances.

The material contained in this article/video/blog is for your general information only and is not intended to be, nor should it be taken as legal advice.

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