Is a Deceased Person's TFSA Taxed on the Final Return in Canada?

If you are the executor of someone who held a Tax-Free Savings Account (TFSA), you may wonder whether the account has to be reported on the final tax return. The short answer is that the account is recognized on death, but the growth inside it is not added to the deceased's income.

What matters next is who receives the account and what happens to it after death. This article explains what goes on the final T1, how beneficiaries are taxed, and what options a surviving spouse or other survivor has.

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

What the final return does and does not include

On death, the TFSA holder is considered to have received, immediately before death, an amount equal to the fair market value of the TFSA property. That is a technical rule that marks the end of the holder's ownership. It does not create tax on the final return.

The deceased reports no TFSA income on the final return or on any optional return. So you do not add the TFSA's value or its growth up to death to the deceased's income.

• The final T1 is the return for the year of death, filed for the province of residence at death.
• TFSA income up to death is not reported there.
• Other income earned up to the date of death still goes on the final return.

Who is taxed on what after death

The fair market value of the TFSA at death is generally not taxable to the beneficiaries. What happens to growth after death depends on how the TFSA is set up.

If the estate itself earns income after death, including earnings from investments held in a TFSA before death, that income is reported on the T3 return and not on the final T1. A T3 is needed if the estate earns income after death or distributes property to beneficiaries.

Which type of TFSA the person had, and who is named to receive it, can change the result. Your financial institution can tell you the account type, and a lawyer or accountant can confirm how it applies to your situation.

The successor holder exception

A surviving spouse or common-law partner who is named as successor holder in the TFSA contract or will simply becomes the new holder. The account keeps its TFSA status, and the fair market value at death and later income are not taxable to them.

There is one important limit. A successor holder does not inherit the deceased's unused contribution room. The survivor's own room is what matters going forward.

This differs from being a designated beneficiary. If the survivor is only named as a beneficiary and not as successor holder, the account is paid out and the exempt contribution rules below may apply.

Exempt contributions and Form RC240

A survivor who is not the successor holder can put amounts received from the TFSA into their own TFSA during the rollover period without using their contribution room. The total cannot exceed the fair market value at death.

Form RC240 must be sent to the CRA within 30 days of making the contribution, or later if the CRA permits.

Starting January 1, 2026, earnings accrued in a TFSA after the holder's death, up to the end of the rollover period, may also be designated as an exempt contribution. This change is recent, so check the current RC240 instructions for how to designate it and for the end date of the rollover period.

For a Québec resident survivor, the CRA's page gives a contribution deadline of December 31 of the year following the year of death, with RC240 still filed within 30 days of the contribution.

What to do next

• Find out whether each TFSA is a deposit, annuity or trust arrangement, and who is named as successor holder or beneficiary.
• Obtain the account's fair market value at the date of death from the institution.
• Do not report TFSA income on the final T1 or optional returns.
• If the estate earns income after death, plan for a T3 return.
• If a survivor wants to make an exempt contribution, note the 30-day RC240 deadline.
• Check the current RC240 instructions for the rollover period end date.

Because the rules vary with the type of account and who receives it, it is worth confirming your steps with a lawyer or accountant before distributing the estate.

Frequently asked questions