Does Your Spouse Keep TFSA Room After Inheriting Yours in Canada?

When a spouse with a TFSA dies, the survivor often wonders two things: does the account stay tax-free, and does receiving it use up the survivor's own contribution room? The answer depends mainly on how the account was set up before the death.

This article explains the successor holder rules in plain terms, what they do and do not do for contribution room, and the exceptions that can change the result. It is general information, not advice on your account.

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

What a successor holder is

A successor holder is the surviving spouse or common-law partner who is named in the TFSA contract or in the will. On the holder's death, they immediately become the new holder and take ownership of the TFSA.

For tax purposes, a survivor is someone who is the holder's spouse or common-law partner immediately before the death. A common-law partner is a person who is not your spouse, with whom you are living in a conjugal relationship and who meets a further condition, such as having lived with you for at least 12 continuous months or being the parent of your child.

If the designation is made in a will, it must state that the successor holds all the same rights as the original holder, including the right to change beneficiary designations. The holder contacts their TFSA issuer to set or change a designation, and the issuer informs the CRA of the change in ownership when a successor holder takes over.

What happens to the account and your own room

When a successor holder takes over, the deceased is not considered to receive an amount from the TFSA on death. The account continues as a TFSA with its tax-free status intact.

Your own contribution room is generally not affected by becoming the successor holder, provided the deceased had no excess amount in the account. You also do not gain the deceased holder's unused contribution room.

• The inherited account keeps growing tax-free as a TFSA.
• Your own available room stays as it was, assuming no excess amount.
• The deceased's unused room does not transfer to you.
• You must have a valid social insurance number (SIN) or individual tax number (ITN).

If you hold several TFSAs, a direct transfer between your own TFSAs does not affect your available room, and your room applies to all your accounts collectively.

Exceptions that can change the result

If the deceased had an excess TFSA amount, the successor holder is treated as making a contribution equal to that excess on the first day of the month after death. If that creates an excess in your accounts, it is taxed at 1% per month while it remains.

The deceased's own excess amount is taxable to the deceased at 1% per month for each month it stays in the account, up to and including the month of death. The legal representative files Form RC243 and Schedule A (RC243-SCH-A).

Quebec is also different. The CRA says Quebec does not recognize the successor holder designation for TFSAs, although a Quebec surviving spouse can still make an exempt contribution.

If you are named as a beneficiary instead

Anyone named other than as a successor holder is a designated beneficiary. A beneficiary receives the account's value rather than taking over the account. A spouse in that position is not a successor holder, so the account itself does not continue in their name.

A survivor who receives TFSA payments as a beneficiary can contribute them to their own TFSA as an exempt contribution that does not affect their available contribution room. That route has its own conditions, including a deadline, and it is not available where the deceased had an excess amount or where more than one survivor receives payments.

What to do next

• Find the TFSA contract and the will, and check whether you are named as successor holder or beneficiary.
• Contact the TFSA issuer and ask how the account is recorded.
• Confirm that you have a valid SIN or ITN.
• Ask the executor whether the deceased had any excess TFSA amount.
• If you live in Quebec, or the situation is unclear, speak with a lawyer or accountant before moving any money.

Frequently asked questions