Is a TFSA Taxed on a Deceased Person's Final Return in Canada?

If you are the executor of someone who has died, you may already know that an RRSP or RRIF is generally added to the final tax return. It is natural to wonder whether a Tax-Free Savings Account (TFSA) works the same way and whether it adds to the tax bill on the final T1.

In general, it does not. A TFSA is treated quite differently, but there are still tax consequences for growth after death, and the rules depend on who receives the money. This article walks through the main cases in plain language.

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

How a TFSA is treated at death

For tax purposes, the TFSA holder is considered to have received, immediately before death, an amount equal to the fair market value of the TFSA property. However, the deceased does not report any TFSA income on the final return or on any optional return.

The fair market value at death is generally not taxable to the beneficiaries either. That is the key difference from an unmatured RRSP, where the fair market value of all plan property is treated as received and goes on line 12900 of the final return.

Successor holder: the simplest case

A successor holder is a surviving spouse or common-law partner named in the TFSA contract or the will. They simply become the new holder, and the account keeps its TFSA status. The fair market value at death and later income are not taxable to them.

One limit is worth knowing about. A successor holder does not inherit the deceased's unused contribution room. A survivor who is not the successor holder may be able to make an exempt contribution instead, as explained below.

Designated beneficiaries and the estate

When the TFSA passes to a designated beneficiary rather than a successor holder, the value at death is generally not taxable, but growth after death can be. How that works depends on the type of TFSA.

Income that the estate itself earns after death, including earnings from investments held in a TFSA before death, is reported on the T3 return and not on the final T1. A T3 is needed if the estate earns income after death or distributes property to beneficiaries.

Exempt contributions and Form RC240

A survivor who is not the successor holder can contribute amounts received from the TFSA to their own TFSA during the rollover period without using up their contribution room. The total cannot exceed the fair market value at death.

Form RC240 must be sent to the CRA within 30 days of making the contribution, or later if the CRA permits. Starting January 1, 2026, earnings accrued in a TFSA after the holder's death, up to the end of the rollover period, may be designated as an exempt contribution.

In Québec, a survivor must make the contribution no later than December 31 of the year following the year of death, and file RC240 within 30 days of the contribution. Because the post-death earnings rule is new, check it against the current RC240 instructions.

What to do next

• Find the TFSA contract and check whether a successor holder or beneficiary is named.
• Get the fair market value of the TFSA at the date of death from the financial institution.
• Confirm whether the account is a deposit, annuity or trust TFSA.
• Note any growth after death, since it may be taxable to the beneficiary or reported by the estate.
• If a survivor wants to make an exempt contribution, diarize the 30-day RC240 deadline.
• Report estate income earned after death on the T3, not on the final T1.

Details can vary with the contract and the family situation, so it is sensible to confirm the treatment with a lawyer or accountant before distributing funds.

Frequently asked questions