Canadian Tax and
Financial Information
Taxes on RRSPs and RRIFs at Death

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RRSPs RRIFs and TFSAs   ->   Wills and Estates   -> Taxes on RRSPs and RRIFs at Death

How are RRSPs and RRIFs Taxed at Death?

The general rule for an RRSP or RRIF is that the value of the RRSP or RRIF at the date of death of the annuitant is included in the income of the deceased for the tax return for the year of death.  However, income tax may be deferred if the beneficiary of the RRSP, RRIF, or estate is:

  1. the spouse or common-law partner

  2. a financially dependent child or grandchild under 18 years of age, or

  3. financially dependent mentally or physically infirm child or grandchild of any age.

In order for the tax to be deferred, the RRSP or RRIF must be transferred to the RRSP, RRIF, or eligible annuity of the beneficiary before December 31st of the year following the year of death.  Other conditions also apply.

The Federal 2010 Budget made a change to also allow a rollover of a deceased individual's RRSP proceeds to the Registered Disability Savings Plan (RDSP) of a financial dependent infirm child or grandchild.  This was effective for deaths occurring on or after March 4, 2010.

Are Taxes Withheld From Payments to Beneficiaries of RRSPs or RRIFs?

A financial institution will not normally withhold income tax when paying out the balance of an RRSP or RRIF to a beneficiary.  Thus, an estate should be planned so that sufficient funds will be available, other than accounts with named beneficiaries, to pay any income tax owing by the deceased.

However, a beneficiary can be found liable for payment of taxes unpaid by the estate.  As stated in Tax Court case  O'Callaghan v. The Queen, 2016 TCC 169 at paragraph 19:

Subsection 160.2(1) of the Act provides that where an annuitant dies, the recipient of a tax-free amount out of or under a RRSP is jointly and severally liable with the deceased annuitant for the deceasedís additional tax payable that arose because the amount was included in the deceasedís income under subsection 146(8.8).

Tax Tip:  Make sure your estate will have sufficient funds to pay any taxes owing.

What Happens to Unmatured Fixed Term Investments in the RRSP or RRIF at Death?

When the RRSP or RRIF is eligible to be transferred as above, so that income tax is deferred, the fixed term investments can be rolled over as part of the investments transferred to the RRSP or RRIF of the beneficiary, or may be cashed to be transferred to the eligible annuity of the beneficiary.  Alternatively, fixed term investments can normally be cashed upon the death of the owner, so could be cashed to be paid out to the beneficiary, and interest will be paid to the date of redemption.  This provision will be in the terms and conditions of the guaranteed investment certificate (GIC), term deposit or other fixed term investment.  The wording will likely be "GICs are not redeemable prior to maturity except in the case of the owner's death", but may also say "unless otherwise indicated".  See examples from ScotiaBank , TD Canada Trust, National Bank and CIBC.  Some fixed term investments may be redeemed in the event of financial hardship.  Also look for wording such as "subject to approval by" the financial institution or brokerage.  These policies normally apply to fixed term investments in both registered and non-registered accounts.

Tax Tip:  If this is a concern, check the wording of the terms and conditions of your fixed term investment prior to purchase!

See also:

Minimizing Probate Fees, Joint Ownership of Assets

Canada Revenue Agency (CRA) Resources:

RC4177 Fact Sheet - Death of an RRSP annuitant

RC4178 Death of a RRIF annuitant

T4040 RRSP and other Registered Plans for Retirement

Tax Tip:  Make sure your RRSP or RRIF named beneficiary is up to date.

Revised: September 06, 2018


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