How are RRSPs and RRIFs taxed when the owner dies in Alberta?
This answer covers the law of Alberta.
An RRSP or RRIF is generally taxed on the deceased's final return, and the tax is paid from the estate rather than by the person who receives the money. The CRA treats the owner as having received the full fair market value of the RRSP property just before death, and that amount is included in income for the year of death. For a RRIF, the full fair market value is likewise included, reported on T4RIF box 18 and line 13000.
A named beneficiary does not pay tax again on an amount that can reasonably be regarded as already included in the owner's income, so the tax on the plan value falls on the final return. Income the plan earns after death is taxed to the designated beneficiaries or the estate when received.
If a spouse or common-law partner is the sole designated beneficiary of an RRSP, the full value is not included if all the property is transferred to the spouse's own registered plan by December 31 of the year after death. For a RRIF, the inclusion does not apply if the contract or will names the spouse or common-law partner as successor annuitant. Confirm the details with a lawyer or accountant.
Key takeaways
- The full fair market value of an RRSP is included in the owner's income for the year of death, and the full value of a RRIF is likewise included.
- The tax on the plan value falls on the final return and is paid from the estate, so a named beneficiary does not pay it again.
- A spouse or common-law partner who is the sole designated beneficiary of an RRSP can avoid the inclusion if the property is transferred to a qualifying plan by December 31 of the year after death.
- If the plan pays to the estate, the legal representative and a qualifying survivor can jointly file Form T2019 to treat the amount as the survivor's refund of premiums.