Protect Estates From Double Taxation: The Loss Carryback Strategy

When a loved one passes away, taxes can take an unexpected toll on their estate. In Canada, deemed dispositions at death often trigger significant capital gains, and in many cases, the same assets may be taxed more than once. The loss carryback strategy under subsection 164(6) of the Income Tax Act (the "ITA") provides executors and families with a way to reduce this burden. For high-net-worth individuals, understanding this option can help preserve more wealth for future generations.

What causes this problem?

Pursuant to paragraph 70(5)(a) of the ITA, a deceased individual is deemed to have disposed of all capital property immediately before death for proceeds equal to the property's fair market value. Although the property is not actually sold, the individual in subject to the tax consequences of the deemed disposition in their terminal year, typically triggering a capital gain. For taxpayers who own shares of private corporations, this can lead to double