Maria inherited a property when her grandmother died in 2020; its fair market value immediately before the death was $600,000. Her grandmother had bought it for $200,000 in 1995. Maria sells it in 2024 for $750,000. For capital gains purposes, what is Maria's adjusted cost base?
Correct Answer
C) $600,000 (fair market value at grandmother's death)
Under Income Tax Act s. 70(5), a person who dies is deemed to have disposed of capital property immediately before death at fair market value, and the person who inherits it is deemed to acquire it at that same value. Maria's adjusted cost base is therefore $600,000, and her capital gain on the sale is $750,000 - $600,000 = $150,000 (before selling costs).
Why This Is the Correct Answer
This is correct because s. 70(5)(b) deems Maria to have acquired the property at its fair market value immediately before her grandmother's death, $600,000. That value becomes her adjusted cost base.
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