- The TFSA's value at death is not reported as income on the deceased's final return, but earnings after death are taxable to the beneficiaries when received.
- A surviving spouse or common-law partner named as successor holder takes over the account and keeps the tax shelter on later growth.
- If no successor holder or beneficiary is named, the TFSA goes to the estate and is distributed under the will.
A TFSA is often one of the simplest accounts in an estate, but the tax treatment depends on who is named and what happens after the date of death. If you are a beneficiary, you may be wondering whether the money is taxed, whether you can keep it sheltered, and who reports what.
This article explains the general rules in Ontario, the difference between a successor holder and a beneficiary, and what happens to growth after death. Your own situation may turn on the account contract and the will, so a lawyer or accountant can confirm the details.
What happens to the TFSA at death
The TFSA holder is considered to have received the account's fair market value immediately before death. Even so, no TFSA income is reported on the deceased's final return or any optional return.
That is a key difference from an RRSP, where the deceased is treated as having received the full value and it is included in income on the final return. The value of the TFSA at death is not taxed, but what the account earns afterward may be.
A final T1 Income Tax and Benefit Return must still be filed for every person who dies, and it reports income and property gains up to the date of death. For a death between January 1 and October 31, the final return and any balance owing are due April 30 of the year after the death. For a death between November 1 and December 31, they are due 6 months after the death, on the same calendar day.
Successor holder versus beneficiary
A successor holder is a surviving spouse or common-law partner who is named as such in the TFSA contract or the will. The successor holder takes ownership of the TFSA at death, growth after death stays sheltered from tax, and the deceased is not considered to have received any amount. Taking over the account does not affect the successor holder's own contribution room, as long as the deceased's TFSA had no excess amount.
A beneficiary is different. A family member, another person or an organization can be named as beneficiary, and a surviving spouse who is named as beneficiary rather than successor holder falls in this group. The wording on the account therefore matters a great deal.
| Situation | General result |
|---|---|
| Spouse or partner is successor holder | Takes over the account; later growth stays sheltered |
| Person or organization is beneficiary | Earnings after death are taxable to them when received |
| Nobody is named | TFSA goes to the estate and is distributed under the will |
Growth after death
If the account is paid to a beneficiary, earnings after the death are taxable to the beneficiaries in the year they receive them. Where the account is slow to close, growth can add up, so it helps to ask the financial institution for a statement showing the value at death and the value when paid out.
If the TFSA goes to the estate, it is distributed under the will. The estate may also need to file a T3 return if it receives payments after the death, and income the estate keeps is taxed in the estate.
The legal representative is usually the executor named in the will, and balances owing to CRA are paid out of the estate's assets. Every legal representative other than a trustee in bankruptcy must also obtain a certificate from the Minister before distributing property under their control, confirming that all tax amounts have been paid or that security has been accepted.
A surviving spouse who is only a beneficiary
A surviving spouse who is named as beneficiary rather than successor holder is treated like any other beneficiary. That is different from a successor holder, who takes ownership of the TFSA at death, with growth after death staying sheltered from tax. For a beneficiary, earnings after the death are taxable in the year they are received.
A survivor in this position may want to move the money into their own TFSA, but whether that is possible without using their own contribution room depends on the facts and the account paperwork. It is worth confirming with an accountant or lawyer before you move any money.
What to do next
- Find the TFSA contract and check whether it names a successor holder or a beneficiary.
- Check whether the will says anything about the account.
- Ask the financial institution for the value on the date of death and the current value.
- Keep records of any amounts paid out and when you received them.
- Ask the executor whether the final return has been filed and when it is due.
- Talk to the estate trustee about whether the estate needs to file a T3 return.
- Speak with a lawyer or accountant before moving money if your situation is unclear.
Frequently asked questions
Do I pay tax on the TFSA money I inherit?
The account's value at death is not reported as TFSA income on the deceased's final return. Earnings after the death are taxable to beneficiaries in the year they receive them.
Does a successor holder pay tax on later growth?
No. A surviving spouse or common-law partner named as successor holder takes ownership of the TFSA, and growth after death stays sheltered from tax.
Does taking over a TFSA use up my own contribution room?
For a successor holder, it does not, as long as the deceased's TFSA had no excess amount.
What if no one is named on the TFSA?
If no successor holder or beneficiary is named, the TFSA goes to the estate and is distributed under the will.
Sources
- CRA – Transfer and report RRSPs (someone who died) — canada.ca
- CRA – TFSA (someone who died) — canada.ca
- CRA – If you are a successor holder of a TFSA — canada.ca
- CRA – What happens when a TFSA holder dies — canada.ca
- CRA – What returns you need to file (someone who died) — canada.ca
- CRA – Filing and payment due dates (someone who died) — canada.ca
- CRA – T3 Trust Guide — canada.ca
- CRA – Represent someone who died — canada.ca
Links go to official government, court and regulator pages. The law changes — confirm you are reading the current version.
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