Can a Common-Law Partner Be a TFSA Successor Holder in Canada?

If you are not married, you may wonder whether your partner can take over your TFSA when you die, or whether you can take over theirs. The federal rules treat spouses and common-law partners together for this purpose.

This article explains the federal definition, what you may want to have on hand to show you qualify, and what happens if you do not.

This article covers Canadian federal tax law, which applies in every province.

Yes, a common-law partner can qualify

A successor holder is the surviving spouse or common-law partner named in the TFSA contract or in the will. Under the Income Tax Act, a survivor is an individual who is, immediately before the holder's death, the holder's spouse or common-law partner.

So the key timing is the moment just before death. Being a partner in the past does not count if the relationship had ended by then. Separated or former partners should get advice, because the wording looks at the relationship immediately before death.

The federal definition of common-law partner

A common-law partner is a person who is not your spouse, with whom you are living in a conjugal relationship and who meets a further condition, such as having lived with you for at least 12 continuous months or being the parent of your child.

What proof may be useful

The federal material does not set out a list of required documents for proving a common-law relationship. What helps in practice is evidence of living together as a couple. Which documents an issuer or the CRA will accept depends on the facts, so confirm with them.

• Documents showing a shared address, such as a lease, mortgage or utility bills.
• Records showing how long you have lived together.
• Birth records if you are the parent of a child together.
• Joint accounts, insurance or other records showing a shared life.
• The TFSA contract or will showing the designation.

How to set it up and what to watch for

• The holder contacts the TFSA issuer to set or change a designation.
• If done in a will, it must state that the successor holds all the same rights as the original holder, including the right to change beneficiary designations.
• The successor must have a valid social insurance number or individual tax number.
• On takeover, the account continues as a TFSA with tax-free status intact, and the issuer informs the CRA of the change in ownership.
• The successor's own contribution room is not affected, and they do not gain the deceased's unused room.

If the deceased had an excess TFSA amount, the successor is treated as making a contribution equal to the excess on the first day of the month after death, and a resulting excess is taxed at 1% per month while it remains.

If you do not qualify or are in Quebec

Someone who is not a successor holder, such as a partner who does not meet the definition, can still be named as a designated beneficiary, who receives the account's value rather than taking over the account. If nobody is named, the TFSA assets go to the estate.

A surviving spouse or common-law partner who receives TFSA payments as a beneficiary can contribute them to their own TFSA as an exempt contribution, generally if made by December 31 of the year following death and not above the TFSA's fair market value at death. Form RC240 must be sent to the CRA within 30 days of the contribution, unless the CRA allows a later date. No exempt contribution is possible if there was an excess TFSA amount or if payments go to more than one survivor.

Quebec does not recognize the successor holder designation, though a surviving spouse or common-law partner there may still contribute amounts received without affecting unused room, if contributed by December 31 of the year following death and Form RC240 is filed within 30 days. If your relationship status is unclear, a lawyer or accountant can help.

Frequently asked questions