How Growth After Death in a Canadian TFSA Is Taxed in Canada

You may open a statement on a TFSA after the holder has died and see that it has kept earning interest or growth. If you are a beneficiary, you will want to know whether that new income is tax-free like the original balance, or whether you will have to report it.

This article explains when post-death income becomes taxable, how it is reported for different kinds of TFSAs, and how a recent change may help surviving spouses and common-law partners.

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

The basic rule

Beneficiaries generally pay no tax on amounts up to the TFSA's fair market value at the date of death. Earnings made after the date of death and before the estate is settled are taxable, because the tax-free part is limited to the fair market value at death.

The main exception is a successor holder. Where one takes over, the account continues as a TFSA with its tax-free status intact, so growth stays sheltered.

How it depends on the type of TFSA

For a trust TFSA, the exempt period 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 continues past that point, its first taxable year includes post-death income or gains that were not paid out during the exempt period.

How it is reported

• Interest from a deposit or annuity TFSA is reported on a T5.
• For a trust TFSA, issuers report taxable payments to Canadian-resident beneficiaries during the exempt period on a T4A in box 134, labelled TFSA taxable amount, with no withholding required.
• Payments above the fair market value at death appear in box 134 of the T4A.
• Non-resident beneficiaries receiving taxable trust payments are reported on an NR4, and the issuer must withhold and remit non-resident withholding tax.
• A trust that continues after the exempt period issues T3 slips for taxable distributions.

Check which slip you receive against the account type, and ask the issuer if the slip does not match what you expected.

The 2026 change for surviving spouses

Starting January 1, 2026, earnings accrued in a TFSA after the holder's death, up to the end of the rollover period, can be designated as exempt contributions. This sits within the exempt contribution rules for a survivor, who can contribute payments received to their own TFSA without affecting their available room.

The usual conditions still matter. The amounts must be received and contributed during the rollover period, which runs from death to December 31 of the year following death, and the total cannot exceed the fair market value at death. Form RC240 must go to the CRA within 30 days of making the contribution, unless the CRA allows a later date. No exempt contribution is possible if the deceased had an excess TFSA amount or if payments are received by more than one survivor.

A beneficiary who is not a survivor, such as a child, cannot designate any amount as exempt. They may contribute to their own TFSA only if they have available room, and over-contributing is taxed at 1% per month while the excess remains. Because this change is recent, confirm the current CRA wording and how it applies to your amounts.

What to do next

• Ask the issuer for the fair market value at the date of death and for a breakdown of later earnings.
• Confirm whether the account is a deposit, annuity or trust TFSA.
• Note the end of the rollover or exempt period, which is December 31 of the year following death.
• If you are a surviving spouse or common-law partner, ask a lawyer or accountant whether to designate an exempt contribution and file Form RC240 on time.
• Keep all T5, T4A, NR4 or T3 slips for the tax return.

How quickly the issuer pays out can vary, and growth during that time may be taxable, so it helps to ask early.

Frequently asked questions