Proceeds of Disposition

When most people hear “proceeds of disposition”, they tend to equate this phrase with sale amount or price paid. For income tax purposes, however, the definition is much broader than the funds or property a seller receives from a buyer in a voluntary sale. This broader definition comes from the broad definition of “disposition” in the Income Tax Act, which includes such events as destruction of property by a natural disaster and expropriation of property by the government. This makes any funds, including insurance proceeds connected to property, to be proceeds of disposition. Additionally, there are deeming rules that determine what the proceeds of disposition are irrespective of the actual funds received on a disposition. For example, non-arm’s length gifts are disposition where the fair market value of the property is deemed received by the person making the gift – possibly giving rise to a taxable capital gain.