RRSP Income After Death in Canada: Final Return or Estate?

Executors often hear that RRSP tax can be moved around: put on the deceased's last return, left with the estate, or passed to the person who receives the money. The real rules are narrower than that, and the choices that do exist depend on who the beneficiary is.

This article explains the starting rule, the situations where the tax can fall on a surviving spouse or other qualifying survivor instead, and the points where you should confirm details with an accountant or lawyer before paying anyone out.

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

The starting rule: the final return carries the tax

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 everything held in the plan at death. That amount is reported on the deceased's final return.

This is true even when a named beneficiary is the one who actually receives the money, unless a qualifying survivor receives a refund of premiums. The deemed amount is added to the deceased's other income for the year of death and taxed at graduated rates, with provincial or territorial tax on top.

If the RRSP names the estate, or has no designated beneficiary, the whole fair market value is the deceased's income on the final return, and the money paid to the estate forms part of the estate that bears the tax.

Income earned after death is treated differently

Income from the plan that is paid after death is included in the income of the designated beneficiaries or the estate, not the deceased. 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.

On the slips, a spouse or common-law partner receives a T4RSP with the amount in box 18, while other beneficiaries or the estate have it in box 28. The deceased's own T4RSP shows the deemed amount in box 34.

If the plan falls in value between death and the final payment, the legal representative can ask that the decrease be carried back and deducted on the final return, using Form RC249 and a reassessment, but no deduction is available when the amount was never included in the deceased's income, for example where the full amount was rolled to a spouse. The deduction is also generally unavailable if the plan held a non-qualified investment after death or the final payment is made after the end of the year following the year of death, although the CRA may waive the second point case by case.

When a qualifying survivor can be taxed instead

A qualifying survivor is the deceased's spouse or common-law partner, or a financially dependent child or grandchild. Money paid to a qualifying survivor as a refund of premiums is taxed to that survivor, who can deduct it by transferring it to their own RRSP, or to a RRIF, RDSP or annuity. The transfer must be completed in the year it is received or within 60 days after the end of that year, and a transfer to an RRSP requires the survivor to be 71 or younger at the end of the year of the transfer. A survivor past that age limit transfers to a RRIF or annuity instead, and a financially dependent child or grandchild who is not infirm can transfer a refund of premiums only to an eligible annuity.

If the RRSP money is paid to the estate, it counts as a refund of premiums only if a qualifying survivor is a beneficiary of the estate and the legal representative and the survivor jointly file Form T2019. That lets the income be taxed to the survivor instead of on the final return. The statute allows the legal representative and an individual to designate a payment this way in prescribed form, and the deceased's deemed amount is reduced by the refund of premiums paid to qualifying survivors.

RRIFs and the exposure of beneficiaries

A RRIF works in a similar way. The annuitant is deemed to have received the fair market value of the RRIF property immediately before death, and it is reported on the final return. If a spouse or common-law partner is named successor annuitant, no deemed receipt applies and the spouse is taxed only on the payments they later receive. A joint designation on Form T1090 lets a qualifying survivor be taxed on RRIF amounts paid to the estate.

Beneficiaries should also know that someone who is not the annuitant and who receives RRSP money can be jointly and severally liable with the deceased for the part of the tax attributable to that amount, and the RRIF rule is similar. In practice, that means beneficiaries can be pursued for the tax if the estate cannot pay.

What to do next

• Get a copy of the RRSP or RRIF contract and any beneficiary designation.
• Confirm whether the plan is unmatured, matured or a RRIF.
• Identify any qualifying survivor: spouse, common-law partner, or financially dependent child or grandchild.
• Ask the financial institution how the amounts will be reported on the T4RSP or T4RIF slips.
• Speak with an accountant before distributing, so enough is kept back for the tax on the final return.

Whether an executor may use registered funds to pay the final-return tax, and how that interacts with provincial estate law, depends on the facts and the province, so confirm it with a lawyer or accountant.

Frequently asked questions