Can an Executor Tax RRSP Death Income to the Beneficiary in Canada?

When someone dies with an RRSP, the tax often lands on the final return even if the money goes to a family member. Executors and beneficiaries often ask whether that income can instead be taxed to the person who actually receives it.

In some situations it can, but only through specific refund of premiums rules and, where the money goes to the estate, a joint election. This article explains who qualifies, how the election works and the deadlines.

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

The default: the deceased is taxed

When the annuitant of an unmatured RRSP dies, the CRA treats the annuitant as having received, immediately before death, the fair market value of all property in the plan. This is reported on the final return.

Because of this, the deceased bears the tax on the full RRSP value even when a named beneficiary actually receives the money, unless a qualifying survivor receives a refund of premiums. The amount is added to other income for the year and taxed at graduated rates.

If the RRSP names the estate or has no designated beneficiary, the whole value is the deceased's income and the payment forms part of the estate that bears the tax.

Who can have the income taxed to them

A qualifying survivor is the deceased's spouse or common-law partner, or a financially dependent child or grandchild. A refund of premiums is an amount paid out of an RRSP because of the annuitant's death to one of those people.

The survivor includes the refund in their own income and can deduct it by transferring it to a registered plan, such as their own RRSP, a RRIF or an annuity, but the options depend on who the survivor is, as the table below shows. The deceased's deemed amount is then reduced by the refund of premiums paid to qualifying survivors.

• A spouse or common-law partner's share can be rolled over, while other beneficiaries' shares stay in the deceased's deemed income.
• A financially dependent child or grandchild may roll over even if the deceased left a spouse or common-law partner.
• A child or grandchild who is not dependent can receive amounts only as a taxable payment, not as a rollover.

The election when the money goes to the estate

A payment to the estate is a refund of premiums only if a qualifying survivor is a beneficiary of the estate and the legal representative and the survivor jointly file Form T2019. This lets the income be taxed to the survivor instead of the final return.

The Income Tax Act allows the legal representative and an individual to designate jointly, in prescribed form, that a payment is a refund of premiums. The designated amount is then deemed received by that individual.

So the answer to the question is a qualified yes: an executor cannot simply choose any beneficiary, but can act jointly with a qualifying survivor. A beneficiary who is not a qualifying survivor cannot be moved off the final return this way.

Dependants, deadlines and special cases

The transfer must be completed in the year the refund is received or within 60 days after the end of that year. A transfer to an RRSP requires the survivor to be 71 or younger at the end of the year of the transfer. A survivor past that age transfers to a RRIF or annuity instead.

There is also a simpler spousal case. The deemed receipt does not apply where the spouse or common-law partner is designated as sole beneficiary and all property is transferred to their RRSP or RRIF, or otherwise rolled over, by December 31 of the year following the year of death.

What to do next

• Get the RRSP beneficiary designation and the will, and see who is named.
• Identify whether any recipient is a spouse, common-law partner or financially dependent child or grandchild.
• If the money is going to the estate, ask whether a qualifying survivor is an estate beneficiary and whether Form T2019 should be filed.
• Note the transfer deadline: the year of receipt or 60 days after that year ends.
• Check each recipient's T4RSP slip against the amounts on the final return.

Beneficiaries should also know that someone who receives RRSP money can be jointly and severally liable with the deceased for the related tax, so they can be pursued if the estate cannot pay. An accountant or lawyer can confirm the best approach for your facts.

Frequently asked questions