Do You Report RRSP Income on the Final Return in Canada?

If you are the executor, one of the biggest surprises on a final return can be a registered plan. Even if the money goes to a child or to the estate, the tax usually lands on the person who died.

This article explains where RRSP and RRIF amounts go on the final T1, which slips you should expect, and the situations that reduce the income reported. Form line numbers change between versions, so check the current T1 and guide.

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

The basic rule for an RRSP

When the annuitant of an unmatured RRSP dies, the CRA treats the annuitant as having received, immediately before death, an amount equal to the fair market value of all the property held in the RRSP at death. This is reported on the final return. The Income Tax Act deems this benefit in s. 146(8.8), less certain amounts payable to a surviving spouse or common-law partner.

The deceased bears the tax on the full value even when a named beneficiary actually receives the money, apart from a qualifying survivor who receives a refund of premiums. The amount is added to the deceased's other income for the year of death and taxed at graduated rates.

Slips and where the amount goes

The deemed amount is shown in box 34 of a T4RSP issued to the deceased for the year of death, and it is reported on the final return at line 12900.

For a RRIF, the last annuitant is deemed to have received the fund's fair market value just before death. Compare each slip with the plan statements before filing.

Situations that reduce the income

• Spouse or common-law partner rollover: the deemed receipt does not apply where the spouse 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.
• Refund of premiums: the deemed amount is reduced by amounts paid to qualifying survivors. A qualifying survivor is a spouse or common-law partner, or a financially dependent child or grandchild.
• Mixed beneficiaries: a spouse's share can be rolled over while other beneficiaries' shares are included in the deceased's deemed income, with each recipient getting a T4RSP for their share.
• Matured RRSP: the deemed amount is the fair market value of the remaining annuity payments.

If the RRSP names the estate, or has no designated beneficiary, the whole fair market value is the deceased's income. A payment to the estate qualifies as a refund of premiums only if a qualifying survivor is a beneficiary of the estate and the legal representative and survivor jointly file Form T2019.

If the plan changes in value after death

If the plan falls in value between death and the final distribution, the legal representative can ask that the decrease be carried back and deducted on the final return, using Form RC249 and a reassessment. In the CRA's example, a fair market value of $185,000 at death and $150,000 received gives a $35,000 deduction on line 23200.

This deduction is generally unavailable if the plan held a non-qualified investment after death, or if the final distribution is made after the end of the year following the year of death, though the CRA may waive that case by case. It is also unavailable when the amount was never included in the deceased's income, such as a full rollover to the spouse. An increase in value after death is included in the income of the beneficiary or estate that receives it, for the year it is received.

A claim made in the year of death needs a letter attached to the return, while later claims need a letter to the CRA.

What to do next

• Request date-of-death values and the T4RSP or T4RIF slips from each plan issuer.
• Identify each beneficiary and whether any is a qualifying survivor.
• Decide with the beneficiaries whether a rollover or joint designation applies.
• Track the plan's value through to the final distribution in case of a decrease.
• Have a lawyer or accountant review the final return when registered plans are large.

Frequently asked questions