What is a deemed disposition concerning capital gains?

A deemed disposition in the context of capital gains refers specifically to the situation where property is considered to have been sold, and consequently, any resulting capital gain or loss must be reported for tax purposes, even if no actual sale has taken place. This is particularly relevant at the time of an individual's death. When a person dies, the Canada Revenue Agency (CRA) treats all of their capital property as if it has been disposed of at fair market value immediately before death, which can trigger capital gains tax liabilities.

The obligation to report capital gains and losses stemming from this concept is crucial for proper tax compliance. This requirement allows the estate to settle any tax obligations before the distribution of assets to beneficiaries. Thus, understanding that a deemed disposition occurs upon death is key in estate planning and for heirs who may be liable for any tax incurred from the disposition of capital assets.

This context underscores why reporting capital gains and losses that arise at death is essential in the process of administering an estate. Other options do not capture the specific tax implications associated with death and the concept of deemed disposition as accurately as the correct choice does.