Is an Executor Liable for Tax on RRSP or RRIF Proceeds in Canada?

RRSPs and RRIFs are often the largest assets a person leaves behind, and they can carry a large tax bill. As executor, you may be asked by beneficiaries to hurry the money along. Before you do, it helps to understand where your own exposure begins.

This article explains the executor's liability rules that apply to unpaid tax, how paying beneficiaries first creates risk, and the steps that reduce it. How a particular plan is paid out depends on its terms and how it was set up, so confirm those details for your own file.

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

Who the law looks to for the tax

Under the Income Tax Act, a legal representative is jointly and severally (solidarily) liable with the taxpayer for the taxpayer's unpaid amounts, to the extent of the representative's control of the taxpayer's property, and CRA may take actions in the representative's name.

A legal representative is a person who administers, winds up, controls or otherwise deals with a property, business or estate, and whether someone qualifies depends on the facts. The representative is typically the executor named in the will; in Quebec, it is the person registered as liquidator.

The key phrase is control of property. Whether you control particular plan proceeds, or whether they pass outside your hands, depends on the plan and the facts, so it is worth confirming before you assume either way.

Why registered plans matter on the asset list

When you apply for a clearance certificate for an estate, CRA asks for a detailed asset list at the date of death, including jointly held assets and RRSPs or RRIFs, with the adjusted cost base and fair market value at distribution. So registered plans are part of the picture CRA reviews, whoever ends up receiving them.

Because the rules on how plan proceeds are reported and taxed depend on details such as who is named and the family relationship, an accountant should confirm the treatment on the final return before you pay anyone.

How paying beneficiaries first creates liability

Before distributing property in their possession or control, a legal representative must obtain a certificate from the Minister, applied for in the prescribed form, confirming that the relevant amounts have been paid or secured. A representative who distributes without the certificate is personally liable for the unpaid amounts, limited to the value of the property distributed, and the Minister may assess the representative for that amount at any time.

• The liability applies whether the assessment comes before or after the actual distribution, and interest accrues.
• Distribution happens when you give up control and transfer the property, not when the beneficiary gains the right to it.
• Appropriating property for yourself counts as a distribution too.

In practice, if you pay out estate money and a tax balance then turns up, CRA may look to you for it, up to what you distributed.

Ways to reduce your exposure

There is no formula for how much to hold back. Any estimate is a judgement, which is a good reason to involve an accountant or lawyer.

Income paid or allocated to beneficiaries from a trust is not a distribution of property, so no certificate is needed for that income.

What to do next

• Confirm your status with CRA by sending a death certificate or funeral director's statement and the document naming you as executor, with the deceased's SIN on each.
• List every account, including RRSPs, RRIFs and jointly held assets.
• File the required returns and wait for the notices of assessment before applying.
• Do not pay beneficiaries the full amount until the certificate arrives, unless enough property remains to cover any liability.
• Ask an accountant how each registered plan is treated and a lawyer how your obligations apply.

Frequently asked questions