How RRSP and RRIF Balances Are Taxed on the Final Return in Canada

When someone dies holding an RRSP or RRIF, the balance can be a large part of what the estate owes tax on. Many people are surprised that the money does not have to be withdrawn for it to be taxed.

This article explains in plain terms when the whole registered balance lands on the final return, how a spouse or partner rollover can avoid that, and what other options exist. Your facts matter, so confirm the details with a lawyer or accountant.

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

The default rule: the full value is added to income

For an unmatured RRSP, the deceased is treated as having received the fair market value of all the plan property just before death. The T4RSP amount (box 34) is reported on line 12900 of the final return.

For a RRIF, the fair market value (T4RIF box 18) is included in income unless the spousal conditions are met. Regular RRIF payments received before death go on line 11500 if the person was 65 or older, or on line 13000.

In practical terms, this can push the final return into higher tax brackets, because a lifetime of deferred income may be taxed in a single year.

The final return for a person who died between January 1 and October 31 is due April 30 of the following year, and for a death between November 1 and December 31 it is due 6 months after the date of death. Different dates can apply in some cases, such as when the person was self-employed. The payment date for a balance owing does not move with the later filing dates, so you may need to pay before filing to avoid interest.

Interest is compounded daily on unpaid amounts from the day after the due date until paid, and interest also applies to late-filing penalties. Filing on time avoids the late-filing penalty even if the balance cannot be paid in full.

How a spouse or partner rollover avoids the tax

If all the plan property is transferred directly to the survivor's RRSP, RRIF, PRPP, SPP or an eligible annuity before the end of the year after death, no T4RSP is issued in the deceased's name. The survivor reports the payment and claims an offsetting deduction.

For a RRIF, a spouse or common-law partner named as successor annuitant in the contract or will becomes the annuitant and keeps getting payments. Without a written election, they can still become annuitant if the legal representative consents and the carrier agrees.

Other situations and extra planning points

• A financially dependent child or grandchild with an impairment in physical or mental function can be an eligible individual for a rollover to their RDSP, subject to RC4460 contribution conditions.
• After death, the legal representative can contribute to the surviving spouse's RRSP in the year of death or within 60 days after year-end.
• The survivor and legal representative can jointly elect to treat amounts from a matured RRSP paid to the estate as paid to the survivor.

Which route fits depends on who is named as beneficiary, what the plan contract says, and the family's circumstances, so it is worth getting advice early.

What happens to growth after death

Increases in value after death are income of the beneficiary or estate when received, and a T4RSP or T4RIF is issued for them.

If the distributions total less than the fair market value included in the deceased's income, the legal representative can request that the difference be deducted on the final return, as long as the final distribution is made by the end of the year after death. This can matter when markets fall after death.

Because growth after death is taxed separately from the amount on the final return, it helps to keep a record of each payment from the plan and its date. How this applies depends on your situation, so it is worth confirming with a lawyer or accountant.

What to do next

The legal representative is usually the executor named in the will (in Québec, the liquidator), and must notify the CRA of their role before accessing the deceased's tax records. Before distributing property, the legal representative must obtain a clearance certificate confirming the deceased's amounts have been paid or secured, and distributing without one can create personal liability.

• Find out who is named as beneficiary or successor annuitant on each RRSP and RRIF.
• Request the date-of-death value from each financial institution.
• Notify the CRA of the death as soon as possible.
• Talk to a lawyer or accountant before any funds are moved, so a rollover is not missed.
• Keep a record of every payment made out of the plans after death.

Frequently asked questions