The will of the deceased specifies that specified shares are to be transferred to a spousal trust. While the estate assets are being administered, the shares are converted from one class to another. Is the spousal rollover still available? If not, does the gain recognized on the tax return of the deceased have to be amended?
CRA in response stated that at the 2015 APFF Roundtable, Q.9, it had noted that the spousal rollover applies on a property-by-property basis, and the spousal trust must receive the same property that is deemed to have been disposed by the deceased taxpayer. Any property substituted for the property held by the deceased taxpayer would not qualify for the spousal rollover, because the language in s. 70(6) does not refer to substituted property.
Here, where there was a share reorganization, if it was determined that the shares were not transferred or distributed to the spousal trust, or not vested indefeasibly in the spousal trust before that reorganization, the shares would not be eligible for the spousal rollover, so that the deceased would be deemed to have disposed of those shares immediately before death, and to realize a capital gain or loss that would need to be reported on the terminal return.