ELI5 summary
The RRSP and RRIF: taxed on the final return unless it rolls over
On death, the fair market value of an RRSP or RRIF is included in the deceased’s income for the year of death, on the final return. For a large plan this pushes much of the value into the top bracket.
There are two main ways to defer that tax:
- Spouse or common-law partner. If the plan passes to a surviving spouse or common-law partner, as named beneficiary, as successor annuitant of a RRIF, or through the estate with the right election, it can be transferred to the survivor’s own RRSP or RRIF with no tax until the survivor withdraws it.
- Financially dependent child or grandchild. A child or grandchild who was financially dependent on the deceased can receive the plan with the tax shifted to them. For a dependant with a physical or mental infirmity, it can roll into their own RRSP or RDSP. For a minor, it can buy an annuity that pays out by age 18, spreading the income over several years at low rates.
Any growth between the date of death and the date the plan is paid out is taxed to whoever receives it, not on the final return.
Who actually pays the tax
When an RRSP is left to an adult child or anyone other than a spouse, the tax on the final return is owed by the estate, while the named beneficiary receives the full value of the plan directly. If the estate has other assets, the beneficiaries of those assets bear the RRSP tax. That can produce very uneven inheritances.
Worked example
Helen, an Ontario resident, dies with a $300,000 RRIF naming her son as beneficiary, and a $40,000 bank account left through her will to her daughter. Her only other income that year is $40,000 of pension. Including the RRIF adds about $132,224 of tax to her final return, using 2026 rates. Her son receives the full $300,000 from the RRIF. The estate’s only asset is the $40,000 bank account, which is not enough to cover the tax, so her daughter receives nothing and the CRA can pursue her son, as the RRIF beneficiary, for the rest. A spouse beneficiary, or a will that equalizes after tax, would have avoided the problem.
The TFSA: successor holder versus beneficiary
A TFSA can pass in two quite different ways.
- Successor holder (spouse or common-law partner only). The survivor simply becomes the new holder. The account keeps its tax-free status, investments carry on, and it does not use any of the survivor’s TFSA room. This is the cleanest outcome and it requires the survivor to be named as successor holder on the account, where provincial law allows it.
- Beneficiary (anyone, including a spouse named only as beneficiary). The account’s value on the date of death is paid out tax-free. Income or growth after the date of death is taxable to the beneficiary. The account can stay tax-exempt until the end of the year after death at the latest.
A spouse who receives a TFSA as beneficiary rather than successor holder can still move it into their own TFSA as an exempt contribution, up to the value at the date of death, without using their room. It has to be done by the end of the year after the death and reported to the CRA on form RC240.
The FHSA
- A spouse or common-law partner can be named successor holder. If they are eligible to hold an FHSA, the account continues as theirs. If not, they can transfer it to their own RRSP or RRIF tax-free or take it as a taxable withdrawal.
- Any other beneficiary receives the value as taxable income, with tax withheld at source.
Naming beneficiaries: the Quebec difference
Outside Quebec, you can usually name a beneficiary or successor directly on the account with the institution. That sends the money straight to the person named, outside the estate, and in most provinces keeps it out of probate.
In Quebec, a beneficiary designation for most registered accounts must be made in a will. Designations on the plan itself are only valid for contracts issued by insurers, such as segregated funds and annuities. A Quebecer who assumes the bank form is enough may find the account passes under the will instead.
The final return
The legal representative files the final return by April 30 of the following year, or six months after the date of death if death occurred between November 1 and December 31. Tax on an RRSP or RRIF is due on the same schedule. Before distributing the estate, representatives usually ask the CRA for a clearance certificate, which confirms that all tax has been paid.
Show the math
RRSP/RRIF at death: FMV included in the deceased’s income (ITA s.146(8.8), 146.3(6)), less amounts that are refunds of premiums to a qualifying spouse, common-law partner or financially dependent child or grandchild, which are included in the recipient’s income and can be offset by a transfer deduction. Post-death growth is taxed to the recipient. Estate and beneficiary are jointly liable for unpaid tax attributable to the plan (s.160.2). TFSA: FMV at death is not taxable; post-death income is taxable to beneficiaries; exempt period ends no later than December 31 of the year following death. Survivor exempt contribution: up to FMV at death, by end of year following death, reported on RC240. Final return due April 30 of the following year, or 6 months after death for deaths from November 1 to December 31.
Worth checking today
- Is a spouse named as successor holder, not just beneficiary, on each TFSA and FHSA?
- Does each RRSP and RRIF name the person you intend, and does your will account for who will pay the tax?
- If you live in Quebec, are the designations in your will?
- Does anyone know where the accounts are? A one-page list of institutions and account types saves an executor weeks.
Key takeaways
- RRSPs and RRIFs are taxed on the final return unless they roll to a spouse or qualifying dependant.
- A TFSA successor holder takes over the account; other beneficiaries get the date-of-death value tax-free.
- An RRSP left to an adult child is usually taxed in the estate while the child gets the full amount.
- In Quebec, name beneficiaries of most registered accounts in your will.