- Beneficiaries generally pay no tax on amounts up to the TFSA's fair market value at the date of death.
- Fair market value is the highest price obtainable in an open and unrestricted market between informed, prudent parties at arm's length.
- Earnings after death and before the estate is settled are taxable, and the issuer reports taxable payments to the CRA.
As an executor, one of your first questions about a TFSA is how much it was worth on the date of death. That figure sets the line between what passes tax-free and what may be taxable.
This article explains what fair market value means, why it matters, and what the financial institution reports. The details depend on how the TFSA is set up, so confirm specifics with the issuer.
This article covers Canadian federal tax law, which applies in every province.
What fair market value means
Fair market value means the highest price, expressed in money, obtainable in an open and unrestricted market between informed, prudent parties dealing at arm's length, neither under compulsion to buy or sell.
For an account holding cash or simple deposits, the value is usually straightforward. For other holdings it can take more work, so ask the issuer for a statement of the account's value as of the date of death.
Why the date-of-death value matters
Beneficiaries generally pay no tax on amounts up to the TFSA's fair market value at the date of death. That amount passes tax-free with no reporting required for it.
Earnings made after the date of death and before the estate is settled are taxable. The tax-free part is limited to the fair market value at death.
Starting January 1, 2026, earnings accrued after the holder's death, up to the end of the rollover period, can be designated as exempt contributions. This is a recent change, so check the CRA's current wording or ask an accountant how it applies.
What the financial institution reports
What gets reported depends on the type of TFSA and whether there is a successor holder. Where a successor holder takes over, the deceased is not considered to receive an amount from the TFSA on death.
| Situation | Treatment |
|---|---|
| Trust TFSA, no successor holder | Payments above fair market value at death appear in box 134 of the T4A |
| Taxable payments to Canadian-resident beneficiaries in the exempt period | Reported on a T4A, box 134 'TFSA taxable amount', with no withholding required |
| Non-resident beneficiaries | Reported on an NR4, and the issuer must withhold and remit non-resident withholding tax |
| Deposit or annuity TFSA, no successor holder | Stops being a TFSA on death; earnings after death are taxable to the beneficiary, and interest is reported on a T5 |
Timing rules for trust TFSAs
For a trust-governed TFSA, the trust keeps limited TFSA treatment during the exempt period. It ends at the earlier of the end of the year following the year of death or when the trust ceases to exist.
If the trust TFSA still exists after that, it becomes a taxable trust and must file a T3 Trust Income Tax and Information Return (T3RET) every tax year it continues. Its first taxable year includes post-death income or gains not paid out during the exempt period.
A deposit that stops being a TFSA is deemed disposed of at fair market value immediately before that time, and the same applies to a trust that stops being a TFSA.
What to do next
- Get the death certificate and will ready for the issuer.
- Ask the issuer for the date-of-death value and whether the account is a trust, deposit or annuity TFSA.
- Find out whether a successor holder or beneficiary was named.
- Ask whether any excess TFSA amount existed, since the legal representative files Form RC243 and Schedule A (RC243-SCH-A) for it.
- Keep the issuer's slips and statements for the final return and any estate filings.
An accountant or lawyer can confirm how these rules apply to your estate.
Frequently asked questions
Is the TFSA taxed at death?
Generally no for amounts up to the fair market value at the date of death, which pass tax-free with no reporting required for that amount. Earnings after death and before the estate is settled are taxable.
Who reports the value to the CRA?
The issuer reports taxable payments to Canadian-resident beneficiaries during the exempt period on a T4A. Tax-free amounts up to fair market value need no reporting.
What is the exempt period?
For a trust-governed TFSA, it ends at the earlier of the end of the year following the year of death or when the trust ceases to exist.
What if the TFSA had an excess amount?
The excess 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.
Sources
- CRA – If you are a successor holder of a TFSA — canada.ca
- CRA – What happens when a TFSA holder dies — canada.ca
- CRA – Death of a TFSA holder (issuers) — canada.ca
- CRA – If you are a designated beneficiary of a TFSA — canada.ca
- Income Tax Act s. 146.2 — Justice Laws (federal)
- CRA – Definitions for TFSA — canada.ca
Links go to official government, court and regulator pages. The law changes — confirm you are reading the current version.
This is a tax question
A tax planning consult with us is from $563.87, tax included. Third-party fees are extra.