Who Pays the Tax if an RRSP Has No Named Beneficiary in Canada?
This answer covers Canadian federal tax law, which applies in every province.
If an RRSP has no named beneficiary, the full fair market value is income on the deceased's final return, and the estate bears the tax. The same result applies when the RRSP names the estate as beneficiary.
The CRA treats the annuitant as having received, immediately before death, an amount equal to the fair market value of all property held in the RRSP. That amount is shown in box 34 of a T4RSP issued to the deceased and reported on the final return. It is added to the deceased's other income for the year of death and taxed at graduated rates, and provincial or territorial tax applies on top.
There are exceptions. A payment to the estate is treated as a refund of premiums only if a qualifying survivor is a beneficiary of the estate and the legal representative and the survivor jointly file Form T2019, which lets the income be taxed to the survivor instead. A qualifying survivor is a spouse or common-law partner, or a financially dependent child or grandchild. Whether anyone qualifies depends on the facts, so an executor should confirm the details with a lawyer or accountant.
Key takeaways
- With no designated beneficiary, the whole fair market value is the deceased's income on the final return, and the estate bears the tax.
- The amount is added to the deceased's other income for the year of death and taxed at graduated rates.
- A payment to the estate counts as a refund of premiums only if a qualifying survivor is a beneficiary of the estate and the legal representative and the survivor jointly file Form T2019.
- If the plan falls in value between death and final payout, the legal representative may be able to carry the decrease back to the final return using Form RC249, but this is generally unavailable if the plan held a non-qualified investment after death, if the final distribution comes after the end of the year following the year of death (which the CRA may waive case by case), or if the amount was never included in the deceased's income.