RRSP or RRIF Lost Value After Death: Claiming It on the Final Return in Canada

Markets do not wait for an estate to be settled. If you are an executor, you may find that an RRSP or RRIF was worth one amount on the date of death and noticeably less by the time it was paid out. The final return, though, is taxed as if the deceased received the higher amount.

There is a mechanism that can fix part of this problem. This article explains the starting rule, how the decrease-in-value deduction works, the CRA's worked example, when the deduction is not available, and what happens in the opposite case, when the plan goes up in value.

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

Why the final return starts with the value at death

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 property held in the RRSP at death. The statute behind this is s. 146(8.8) of the Income Tax Act. The amount is shown in box 34 of a T4RSP issued for the year of death and is reported on the final return.

For a RRIF, the same idea applies. The annuitant is deemed to have received the fair market value of all RRIF property immediately before death, shown in box 18 of a T4RIF. The statute is s. 146.3(6).

The deemed amount is added to the deceased's other income for the year of death and taxed at graduated rates. That is why a drop in value after death can feel unfair: the tax is calculated on the value at death, not on what the beneficiary or estate actually receives, unless a qualifying survivor (a spouse or common-law partner, or a financially dependent child or grandchild) receives a refund of premiums, which reduces the deemed amount on the final return.

How the decrease-in-value deduction works

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. The relevant provisions are s. 146(8.92) and (8.93) of the Income Tax Act.

• If the final distribution happens in the year of death, the deduction is claimed on line 23200 of the final return.
• If the final distribution happens later, the legal representative files Form RC249 and asks for a reassessment of the final return.
• A claim made in the year of death needs a letter attached to the return.
• A later claim needs a letter sent to the CRA.

The legal representative is the person who administers the estate, usually the executor. Because this is a request to change the deceased's return, keep the statements showing the value at death and the amounts paid out.

The CRA example: $185,000 down to $150,000

In the CRA's example, the plan's fair market value at death was $185,000, and $150,000 was ultimately received. The result is a $35,000 deduction on line 23200.

In effect, the final return ends up taxed on the $150,000 that was really paid out, rather than on the $185,000 value at death. Your own numbers will depend on how the plan was invested and how the payouts were made, so confirm the calculation with an accountant.

When the deduction is not available

The deduction has limits. It is worth checking each of them before you count on it.

• The plan held a non-qualified investment after death. The decrease-in-value deduction is generally unavailable in that case.
• The final distribution is made after the end of the year following the year of death. The CRA may waive this case by case.
• The amount was never included in the deceased's income, for example where the full amount was rolled to the spouse. There is then nothing to reduce, so no deduction is available.

The spousal rollover is a good example of how the pieces fit together. If a spouse or common-law partner is the sole beneficiary and the property is transferred to their RRSP or RRIF by December 31 of the year following the year of death, the deemed receipt does not apply and the spouse reports the amount received. The tax question then sits with the spouse rather than the final return.

When the plan goes up, and why timing matters

The reverse case works differently. 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. So the final return is taxed on the value at death, and any growth afterward is taxed to whoever receives it.

Timing matters because different people may be taxed at different rates. For 2026, the federal rates are 14% up to $58,523, 20.5% from $58,523 to $117,045, 26% from $117,045 to $181,440, 29% from $181,440 to $258,482 and 33% above $258,482. A large deemed amount can push a final return into the higher brackets, and provincial or territorial tax applies on top. Whether a decrease or an increase is better handled in one return or another depends on the other income involved, so it is worth running the numbers before the payout is made.

Also keep in mind that tax withheld on RRSP lump sums may not cover the tax actually owing, because the withholding rate is not the bracket rate. Beneficiaries who receive RRSP or RRIF amounts can also be jointly and severally liable with the deceased for the tax attributable to those amounts if the estate cannot pay.

What to do next

• Get the plan's value at the date of death in writing from the financial institution.
• Track every payout from the plan, with dates and amounts.
• Confirm whether the plan held any non-qualified investment after death.
• Plan the final distribution so it falls by the end of the year following death, if you can.
• Decide whether the claim goes on line 23200 with a letter, or is made later through Form RC249 and a letter to the CRA.
• Check line numbers against the current version of the T1 return and the CRA's guidance, since they can change between form versions.
• Speak with an accountant or lawyer before filing if the amounts are large or the plan has unusual investments.

Frequently asked questions