RRSP Rollover to a Financially Dependent Child or Grandchild in Canada

When a parent or grandparent dies with an RRSP or RRIF, the tax bill can be large and arrives all at once. If the money is going to a child or grandchild who relied on the person for support, there is a special rule that may let the tax be deferred instead.

This article explains who counts as financially dependent, where the money can be rolled, and how the paperwork and timing work. Details depend on the plan and the family, so treat this as a starting point and confirm with a lawyer or accountant.

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

Why the rollover matters

When the annuitant of an unmatured RRSP dies, the CRA treats the annuitant as having received, immediately before death, the fair market value of everything held in the plan, and that amount is reported on the final return. The deemed amount is added to the deceased's other income for the year of death and taxed at graduated rates, even when a named beneficiary is the one who actually receives the money.

A RRIF works in a similar way: the annuitant is deemed to have received the fair market value of all RRIF property immediately before death. A RRIF beneficiary who is not a successor annuitant can defer the tax only if they are a qualifying survivor who rolls over the refund of premiums.

Who counts as financially dependent

A qualifying survivor is the deceased's spouse or common-law partner, or a financially dependent child or grandchild. In the Income Tax Act, a refund of premiums includes an amount paid out of an RRSP because of the annuitant's death to a child or grandchild who was financially dependent on the annuitant for support.

• Not disabled: the person must have ordinarily resided with and depended on the annuitant, and their net income for the year before death must be less than the unreduced maximum basic personal amount.
• Mental or physical infirmity: the income limit is higher, being the basic personal amount plus the disability amount.
• Non-resident dependants may qualify if they received significant financial support from the annuitant, but a written request to the CRA tax services office is needed.

A financially dependent child or grandchild may roll over a refund of premiums even if the deceased left a spouse or common-law partner. A non-dependent child or grandchild can receive amounts only as a taxable payment, not as a rollover.

Where the money can be rolled

In general, a qualifying survivor who receives a refund of premiums includes it in their own income and can deduct it by transferring it to their own RRSP, or to a RRIF, RDSP or annuity. For a child or grandchild, the options are narrower, as the table shows.

The annuity for a child or grandchild who is not infirm must run for not more than 18 years minus their age when it is bought, with payments starting no later than one year after purchase. The RDSP rollover is subject to the $200,000 lifetime RDSP limit and has been available since July 1, 2011. The RDSP deduction is allowed under paragraph 60(m) of the Income Tax Act.

How the tax is reported and deferred

The child or grandchild reports the refund of premiums in their own income, and the matching deduction comes from the transfer. The transfer must be completed in the year the amount is received or within 60 days after the end of that year. On the deceased's side, the deemed amount is reduced by the refund of premiums paid to qualifying survivors.

Where there are several beneficiaries, each recipient gets a T4RSP for their share. The final return carries the box 34 deemed amount reduced for amounts rolled to qualifying survivors, while the other beneficiaries' shares stay in the deceased's income. How later annuity or RDSP payments are taxed depends on the product chosen, so confirm that with an accountant.

If the RRSP names the estate, the whole fair market value is the deceased's income. 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. For a RRIF, a joint designation on Form T1090 lets a qualifying survivor be taxed on amounts paid to the estate.

What to do next

• Find the plan contract and the beneficiary designation, and confirm whether it is an RRSP or a RRIF.
• Gather proof of the child's or grandchild's residence, support and prior-year net income.
• Ask the plan issuer how the refund of premiums will be paid and slipped.
• Choose the annuity or RDSP before the transfer deadline, and keep the paperwork.
• If money goes to the estate, ask the legal representative about joint filing of the required form.
• Have an accountant or lawyer check the final return, since beneficiaries who receive plan amounts can be held liable for the related tax if the estate cannot pay.

Because the tax outcome turns on dependence, the type of plan and timing, get advice early, before money is moved.

Frequently asked questions