Do I Need to File a T3 for a TFSA After Death in Canada?

As executor you may wonder whether the deceased's TFSA now needs its own trust return. The short answer is that it depends on the type of account, who is named, and how long the account stays open after death.

This article explains the general federal rules. A lawyer or accountant can confirm how they apply to your file.

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

When no T3 is triggered

If a successor holder takes over, the deceased is not considered to receive an amount from the TFSA on death, and the account continues as a TFSA with its tax-free status intact.

A successor holder is the surviving spouse or common-law partner named in the TFSA contract or in the will. If the designation is in the will, it must state that the successor holds all the same rights as the original holder, including the right to change beneficiary designations. On the holder's death they immediately become the new holder and take ownership of the TFSA. The Income Tax Act s. 146.2(1) describes a survivor as an individual who is, immediately before the holder's death, the holder's spouse or 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. Quebec does not recognize the successor holder designation for TFSAs, though a Quebec surviving spouse can still make an exempt contribution.

Becoming a successor holder does not affect the successor's own contribution room if the deceased had no excess amount, and they do not gain the deceased holder's unused room. If the deceased did have an excess amount, the successor holder is treated as making a contribution equal to the excess on the first day of the month after death, and any resulting excess in their accounts is taxed at 1% per month while it remains.

If the beneficiary is paid out, amounts up to the fair market value at death generally pass tax-free with no reporting required for that amount, but earnings made after the date of death and before the estate is settled are taxable, because the tax-free part is limited to the fair market value at death. For deposit or annuity TFSAs without a successor holder, the account stops being a TFSA on death and interest is reported on a T5. If no successor holder or beneficiary is named, the TFSA assets are directed to the deceased holder's estate and the will governs distribution.

The exempt period for a trust TFSA

For a trust-governed TFSA, the trust keeps limited TFSA treatment during the exempt period. That period ends at the earlier of the end of the year following the year of death or when the trust ceases to exist. The Income Tax Act describes it as the end of the first calendar year that begins after the holder dies.

During this time, income earned and paid to beneficiaries is taxable income to them, and payments above the fair market value at death appear in box 134 of the T4A. Issuers report taxable payments to Canadian-resident beneficiaries on a T4A with no withholding required.

If a non-resident beneficiary receives taxable trust payments, they are reported on an NR4 and the issuer must withhold and remit non-resident withholding tax.

When the T3 obligation begins

If a trust TFSA still exists after the exempt period, it becomes a taxable trust. It must file a T3 Trust Income Tax and Information Return (T3RET) every tax year it continues, and issue T3 slips for taxable distributions.

The first taxable year after the exempt period includes post-death income or gains not paid out during the exempt period.

Related points for executors

• If the deceased had an excess TFSA amount, it is taxable to the deceased at 1% per month up to and including the month of death, and the legal representative files Form RC243 and Schedule A (RC243-SCH-A).
• When a trust stops being a TFSA, it is deemed disposed of at fair market value immediately before that time.
• The tax treatment of an estate that holds a TFSA is not fully settled by the points here, so an accountant should review it.

Fair market value means the highest price, expressed in money, obtainable in an open and unrestricted market between informed, prudent parties dealing at arm's length, neither under compulsion to buy or sell.

A survivor who receives TFSA payments as beneficiary can contribute them to their own TFSA as an exempt contribution that does not affect their own available contribution room. The amount must be received and contributed during the rollover period, which ends December 31 of the year following death, and generally total no more than the fair market value at death. Starting January 1, 2026, however, earnings accrued in the TFSA after death, up to the end of the rollover period, can also be designated as exempt contributions. The survivor sends Form RC240 to the CRA within 30 days of making the contribution, unless the CRA allows a later date. Generally, no exempt contribution is possible if the deceased's TFSA had an excess amount, although the Income Tax Act allows the Minister to permit a greater amount than nil in that case. No exempt contribution is possible either if payments are received by more than one survivor.

A non-survivor beneficiary, such as a child, may contribute received amounts to their own TFSA only if they have available room, and cannot designate any amount as exempt. Over-contributing is taxed at 1% per month while the excess remains. If a qualified donee is named as beneficiary, funds generally must be transferred within 36 months of death.

What to do next

• Ask the issuer whether the TFSA is a deposit, annuity or trust arrangement.
• Find out whether a successor holder or beneficiary was named.
• Note the end of the exempt period, which is the end of the year after death for most cases.
• Pay out or transfer the account before that date where possible, and ask an accountant about the T3RET if it stays open.
• Keep issuer statements, T4A and T5 slips for the returns.

Frequently asked questions