What Happens to an RRSP or RRIF When the Holder Dies in Canada?

An RRSP or RRIF can be a large part of an estate, and the tax bill often surprises families. Unlike most assets, the plan is generally treated as cashed in when the holder dies.

This article explains where the amount is reported, who can take the tax instead, and how a rollover can defer it.

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

How the final return treats the plan

For an unmatured RRSP, the annuitant is treated as receiving the plan's full fair market value just before death. It 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 whole amount can be added to the year's income, it may be taxed at higher rates. That is why the question of who receives the plan matters.

Who can take the tax instead

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 the 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. The test is that amount plus the disability amount where the dependence is due to infirmity.

Deferring the tax with a rollover

The survivor can defer tax by transferring the refund of premiums to an RRSP, RRIF, PRPP, SPP or eligible annuity. The transfer must be 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 growth after death

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

Growth after death that is paid to beneficiaries or the estate is included in their own income. Income the estate earns after death is reported on the estate's T3 return, which is due 90 days after the trust's year-end.

Deadlines, penalties and the clearance certificate

For a death from January 1 to October 31, the final return and any balance owing are due April 30 of the year following the death. For a death from November 1 to December 31, the final return is due 6 months after the date of death. If the deceased or the spouse or common-law partner living with them carried on a business on the date of death, the filing date is June 15 of the following year for deaths from January 1 to December 15, and 6 months after death for deaths from December 16 to December 31. The payment date does not change for business income.

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. The CRA may cancel penalties or interest for circumstances beyond your control.

The legal representative may also file optional returns, such as a Return for Rights or Things. These are not required, but they may reduce tax by allowing certain credits to be claimed more than once.

• A clearance certificate is requested on Form TX19 and issued on Form TX21.
• TX19 should not be filed until the notices of assessment have been received, unless an exception applies.
• Without the certificate, the representative is personally liable for unpaid amounts to the extent of the value of property distributed.
• A new certificate is not required before each distribution as long as enough property is retained to cover any potential liability.
• The certificate does not stop the CRA from recovering unpaid tax later from an estate or beneficiaries.

What to do next

• Get the plan statements and the beneficiary designation from the financial institution.
• Find out whether the plan is matured or unmatured.
• Check whether a spouse, partner or dependent child or grandchild qualifies.
• If the payment goes to the estate, ask about Form T2019.
• Note the 60-day transfer window after year-end.
• Keep the final return deadline in mind: April 30 of the following year for a death from January 1 to October 31.

Beneficiary designations and the choice between the estate and a survivor can change the tax result. A lawyer or accountant can confirm your options before money is paid out. Before distributing estate property, the legal representative should also deal with the clearance certificate.

Frequently asked questions