RRSP or RRIF Lost Value After Death: Claiming the Decrease in Canada

When someone dies holding an RRSP or RRIF, the tax system does not wait to see what is actually paid out. The deceased is taxed on the value of the plan at the date of death, and that tax falls on the final return. If markets drop before the money is distributed, the estate can face tax on money that nobody ever received.

This guide is for executors and legal representatives. It explains how the deemed amount works, how the decrease-in-value deduction can fix the gap, how to claim it, and when it does not apply. These are federal rules only, and Quebec has its own rules. Line numbers can change with form versions, so check them against the current CRA forms and guides.

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

How the deemed amount lands on the final return

For an unmatured RRSP, the annuitant is treated as having received, immediately before death, an amount equal to the fair market value of all property in the plan at death. The statute behind this is s. 146(8.8) of the Income Tax Act. For a RRIF, the annuitant is likewise deemed to have received the fair market value of all the RRIF property, and s. 146.3(6) is the statutory source.

The RRSP 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 amount is shown in box 18 of a T4RIF and reported on the final return. The amount is added to the deceased's other income for the year and taxed at graduated rates, even when a named beneficiary actually receives the money, except where a qualifying survivor (a spouse, common-law partner, or financially dependent child or grandchild) receives a refund of premiums. A spouse or common-law partner named as sole beneficiary can also avoid the deemed receipt if all the property is transferred to their RRSP or RRIF, or otherwise rolled over, by December 31 of the year following the year of death.

If the RRSP names the estate, or has no designated beneficiary, the whole fair market value is generally the deceased's income on the final return. The exception is where a qualifying survivor is a beneficiary of the estate and the legal representative and the survivor jointly file Form T2019, which makes the payment to the estate a refund of premiums taxed to the survivor instead of on the final return.

The decrease-in-value deduction

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 deceased's final return, through Form RC249 and a reassessment. The statute is s. 146(8.92)–(8.93).

The CRA's own example shows how it works. The fair market value at death was $185,000 and $150,000 was received, so the deduction is $35,000 on line 23200. The final return then reflects the amount actually received rather than the higher value at death.

How to claim it

The method depends on timing. If the final distribution is made in the year of death, the deduction is claimed on line 23200 of the final return. A reduction claim made in the year of death needs a letter attached to the return, while later claims need a letter to the CRA. A later claim leads to a reassessment of the final return.

• Get the plan's fair market value at the date of death in writing from the issuer.
• Keep records of every payment from the plan and its date.
• Confirm the final distribution date and the amount actually received.
• Complete Form RC249 and prepare the supporting letter.
• Attach the letter to the final return if payout was in the year of death, or send it to the CRA if later.
• Check line numbers against the current CRA forms and guides.

When the deduction is not available

The 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. The CRA may waive the late-distribution case on a case-by-case basis.

There is no decrease-in-value deduction when the amount was never included in the deceased's income, for example where the full amount was rolled to the spouse. In that situation the spousal rollover exception means the deemed receipt does not apply at all, provided the conditions are met.

• A non-qualified investment held in the plan after death.
• A final payout after the end of the year following the year of death, unless the CRA waives it.
• An amount never included in the deceased's income, such as a full spousal rollover.

What if the plan goes up in value instead?

An increase in value after death is not added to the final return. It is included in the income of the beneficiary or estate that receives it, for the year it is received. So the deceased is taxed on the value at death, and any growth afterwards is taxed to whoever receives it.

Payments received after death are reported by beneficiaries on slips such as a T4RSP box 28 for non-spouse beneficiaries or the estate, or a T4RIF box 22 for RRIF amounts.

Why delay matters and what to do next

A long delay in paying out can cost the estate the deduction, because of the cut-off after the end of the year following death. Separately from timing, s. 160.2(1) makes a person who receives an RRSP amount jointly and severally liable with the deceased for the part of the year-of-death tax attributable to that amount, and s. 160.2(2) does the same for a RRIF. Beneficiaries can therefore be pursued for the tax if the estate cannot pay.

Practical next steps: ask the plan issuer for the date-of-death value, track the distribution timeline against the year-following-death deadline, and speak with a lawyer or accountant before the final return is filed, especially if the plan holds unusual investments or the distribution may slip past that date.

Frequently asked questions