Jean recently retired at age 60. A passionate art collector for some 30 years, Jean now has an impressive collection of Canadian paintings. His…

Upon death, an individual is deemed to have disposed of all capital property at its Fair Market Value (FMV). The capital gain on the art collection is the FMV less the Adjusted Cost Base ($600,000 - $150,000 = $450,000). The taxable portion is 50% of the capital gain, which is $225,000. This amount must be declared on Jean's final tax return. Furthermore, the full FMV of an RRSP is included as income on the deceased's final tax return unless it is transferred on a tax-deferred basis to a "qualified beneficiary." A qualified beneficiary includes a spouse, a financially dependent minor child, or a financially dependent child of any age with a physical or mental infirmity. Since Claudia is 33 and not described as financially dependent due to an infirmity, she is not a qualified beneficiary. Therefore, the entire RRSP value is considered income for Jean in his year of death.

A. This is incorrect because it implies the RRSP is transferred to Claudia without tax consequences for Jean's estate. The full value of the RRSP must first be included as income on Jean's final return.
B. This is incorrect because it states the taxable capital gain is $450,000. This figure represents the total capital gain, not the taxable portion, which is 50% of that amount.
D. This is incorrect because the taxable capital gain is $225,000, not $450,000. It also incorrectly implies the RRSP proceeds are treated as a capital gain; they are treated as regular income.

1. IFSE Institute, Life Insurance Qualification Program (LLQP) - Taxation, Module 4, Section 3.1 "Deemed Disposition on Death." This section explains that capital property is deemed to be disposed of at its fair market value immediately before death, triggering any accrued capital gains.

2. IFSE Institute, Life Insurance Qualification Program (LLQP) - Taxation, Module 4, Section 3.2 "Calculating the Taxable Capital Gain." This part specifies the capital gains inclusion rate is 50%, which is used to calculate the taxable portion of the capital gain ($450,000 x 50% = $225,000).

3. IFSE Institute, Life Insurance Qualification Program (LLQP) - Segregated Funds and Annuities, Module 6, Section 4.3 "Taxation of RRSPs at Death." This section details that the fair market value of the RRSP is included in the deceased annuitant's income for the year of death, unless a tax-deferred rollover to a qualified beneficiary (spouse, common-law partner, or financially dependent child/grandchild) is possible. The definition of a qualified child for this purpose is specified, and Claudia does not meet the criteria.