RRSP and RRIF at Death: Tax on the Final Return in Canada

Registered retirement savings often form the largest part of an estate, and they can create a large tax bill on the final return. Executors and beneficiaries are often surprised by this, because the money has never been taxed before.

This article explains the general rule, the main ways a spouse or dependant can defer tax, and what executors should check before distributing money.

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

The general rule for an RRSP

For an unmatured RRSP, the annuitant is treated as receiving the plan's full fair market value just before death. That amount is included on the final return at line 12900, usually from a T4RSP. RRIF income is reported as other income at line 13000.

Because the full value is included on the final return, it can be taxed all at once in the year of death, unless an exception such as a refund of premiums to a qualifying survivor applies. How this plays out depends on the plan, who is named and the rest of the estate, so it is worth confirming with an accountant or lawyer.

Ways to reduce or defer the tax

A refund of premiums paid to a qualifying survivor reduces the deceased's income and is taxed to the survivor, unless it is transferred. A qualifying survivor is a spouse or common-law partner, or a financially dependent child or grandchild.

If the refund is paid to the estate, the legal representative and survivor file Form T2019 jointly to designate it.

A financially dependent child or grandchild is generally one who lived with and depended on the annuitant, with prior-year net income below the basic personal amount, or that amount plus the disability amount where the dependence is due to infirmity.

The survivor can defer tax by transferring the refund of premiums to an RRSP, RRIF, PRPP, SPP or eligible annuity, completed in the year 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 transfer.

Matured plans and RRIFs

If the RRSP has matured, the rule differs. A surviving spouse or common-law partner who is successor annuitant takes over the annuity payments and reports them as income when received, and the annuitant is not deemed to have received them at death.

Growth after death paid to beneficiaries or the estate is included in their own income. Whether a particular plan counts as matured, and who is named, depends on the plan documents, so read them carefully.

Timing and executor responsibilities

A late-filing penalty with a balance owing is 5% of the balance plus 1% for each full month late, up to 12 months, and it can be higher if a late-filing penalty was assessed in any of the 3 previous years. Unpaid balances bear compound daily interest from the day after the due date.

A legal representative must obtain a clearance certificate from the Minister before distributing property under their control. Without it, the representative can be personally liable for the amounts owing, up to the value of the property distributed. The request is made on Form TX19, which should not be filed until the notices of assessment have been received, unless an exception applies.

What to do next

• Get the plan statements and any beneficiary designations for every RRSP and RRIF.
• Ask the issuer whether it will issue a T4RSP and who it will be issued to.
• Find out whether any beneficiary is a spouse, common-law partner or financially dependent child or grandchild.
• If the money goes to the estate, ask an accountant whether a joint T2019 designation makes sense.
• Note the filing and payment dates for the final return.
• Hold back enough property to cover possible tax and request a clearance certificate before distributing.
• Speak with an accountant or lawyer, because the right approach depends on the whole estate.

Frequently asked questions