Can I Use My RRSP to Pay the Tax Bill After Someone Dies in Canada?
This answer covers Canadian federal tax law, which applies in every province.
Whether RRSP money can pay the final tax bill depends on who receives it, so it is worth confirming with a lawyer or accountant. If an RRSP is paid to the estate, the estate bears the tax, unless a qualifying survivor beneficiary and the legal representative jointly file Form T2019. If it goes to a named beneficiary, the deceased generally bears the tax on the final return, except where a qualifying survivor receives a refund of premiums or a sole spouse or common-law partner beneficiary rolls it over by December 31 of the following year.
The same idea applies to a RRIF, where the annuitant is deemed to have received the fund's fair market value immediately before death, unless a spouse or common-law partner is named successor annuitant. A RRIF beneficiary who is not a successor annuitant receives a lump sum, and the tax is on the deceased's final return.
A non-annuitant who receives an RRSP amount is jointly and severally liable with the last annuitant for the part of the tax attributable to that amount, and the same rule applies to a RRIF. Whether an executor can ask beneficiaries to contribute depends on the plan, the will and the circumstances, so confirm with a lawyer or accountant.
Key takeaways
- If an RRSP is paid to the estate, the estate generally bears the tax, unless a qualifying survivor who is an estate beneficiary and the legal representative jointly file Form T2019.
- Even when a named beneficiary receives the money, the deceased generally bears the tax on the full RRSP value, unless a qualifying survivor receives a refund of premiums or a spousal rollover applies.
- Tax withheld on a payout may not cover the tax actually owing, and the balance is payable when the income is reported.
- A non-annuitant who receives an RRSP or RRIF amount is jointly and severally liable with the last annuitant for the tax attributable to that amount.