- A surviving spouse or common-law partner named as successor holder takes over the TFSA, and the deceased is not considered to have received any amount.
- If a TFSA goes to a named beneficiary or the estate, no TFSA income goes on the final return, and earnings after death are taxable to the beneficiaries in the year they receive them, while income the estate keeps is taxed in the estate.
- A TFSA with a beneficiary designation is outside the estate value for Estate Administration Tax, while one paid to the estate counts toward it.
A Tax-Free Savings Account (TFSA) does not stop being a tax question when the holder dies. What happens next depends mostly on one thing: who, if anyone, was named on the account.
If you are an executor or a family member sorting this out, this article explains the three routes a TFSA can take, how each is taxed, and how the account affects Ontario's Estate Administration Tax.
The three routes a TFSA can take
When a TFSA holder dies, the account generally ends up in one of three places. Which one applies is set by the account contract and, in some cases, the will.
| Route | Who receives it | Key point |
|---|---|---|
| Successor holder | Surviving spouse or common-law partner | Takes ownership of the account at death |
| Named beneficiary | Family member, another person, an organization, or a spouse named only as beneficiary | Receives the account's value |
| No designation | The estate | Distributed under the will |
For tax purposes the holder is considered to have received the account's fair market value immediately before death. The exception is the successor holder route, where the deceased is not considered to have received any amount.
Successor holder: the spouse or partner takes over
A surviving spouse or common-law partner named as successor holder in the TFSA contract or will takes ownership of the TFSA at death. Growth after death stays sheltered from tax.
Taking over the account does not affect the survivor's own contribution room, as long as the deceased's TFSA had no excess amount.
Being the surviving spouse is not enough on its own. A spouse who is named as beneficiary rather than successor holder falls into the beneficiary group instead. It is worth checking the exact wording on the account.
Named beneficiary or the estate
A family member, another person or an organization can be named as TFSA beneficiary. If no successor holder or beneficiary is named, the TFSA goes to the estate and is distributed under the will.
No TFSA income is reported on the deceased's final return or any optional return. However, earnings after the death are taxable to the beneficiaries in the year they receive them. So the balance at death is not taxed as income, but growth between death and payout can be.
- Delays in paying out the account can mean more post-death earnings to report.
- Where the estate holds the money and keeps any income, that income is taxed in the estate; amounts the estate allocates to beneficiaries are generally included in their income.
- How a surviving spouse who is only a named beneficiary can move the money into their own TFSA is a specialized point. It is worth confirming with a lawyer or accountant rather than assuming.
How a TFSA affects Estate Administration Tax
In Ontario, Estate Administration Tax is charged on the value of the estate when an estate certificate is applied for. For certificates applied for on or after January 1, 2020, there is no tax on estates worth $50,000 or less, and $15 for each $1,000 or part of $1,000 over $50,000.
The estate value leaves out TFSAs that have a beneficiary designation. A TFSA paid to the estate is not in that excluded group, so it counts toward the estate's value.
This means the designation, or lack of one, can change the tax on probate. Because the tax is charged on value rounded up to the nearest thousand, even a modest TFSA can move the amount.
What an executor should do next
The estate trustee winds up the deceased's affairs and pays taxes, bills and other debts before distributing what is left. A TFSA is one piece of that picture.
- Get the TFSA contract and any beneficiary or successor holder designation from the financial institution.
- Read the will to see whether it mentions the account, in case there is no designation.
- Note the account's value at the date of death and any growth afterwards.
- Make sure the final T1 return is filed, since one must be filed for every person who dies.
- Consider whether the estate needs a T3 return, which is generally filed if the estate realizes any gain or receives payments after death.
- Confirm how any post-death earnings will be reported by the estate or the beneficiaries.
- Speak with a lawyer or accountant before paying out, especially if the estate is complicated.
Frequently asked questions
Is a TFSA taxed on the final return when someone dies?
No TFSA income is reported on the deceased's final return or any optional return. Earnings after the death are taxable to the beneficiaries in the year they receive them. If the estate keeps income instead of paying it out, that income is taxed in the estate.
What is the difference between a successor holder and a beneficiary?
A surviving spouse or common-law partner named as successor holder takes ownership of the TFSA, and growth after death stays sheltered. A beneficiary, including a spouse named only as beneficiary, receives the account's value instead.
What if nobody was named on the TFSA?
If no successor holder or beneficiary is named, the TFSA goes to the estate and is distributed under the will. It also counts toward the estate's value for Estate Administration Tax.
Does a TFSA with a named beneficiary count for probate tax?
No. A TFSA with a beneficiary designation is excluded from the estate value used for Estate Administration Tax.
Sources
- CRA – TFSA (someone who died) — canada.ca
- CRA – If you are a successor holder of a TFSA — canada.ca
- CRA – What happens when a TFSA holder dies — canada.ca
- CRA – What returns you need to file (someone who died) — canada.ca
- CRA – T3 Trust Guide — canada.ca
- Ontario – Estate Administration Tax — ontario.ca
- Ontario – Administering estates — ontario.ca
Links go to official government, court and regulator pages. The law changes — confirm you are reading the current version.
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