Does a TFSA Go on the Final Tax Return at Death in Canada?

When you prepare the final T1 for someone who has died, RRSPs and RRIFs are often the big concern. A TFSA is different, and many executors are unsure whether it belongs on the return at all.

In general the balance does not, but there are exceptions and some related reporting. This article explains the rule, the exceptions, and who reports what.

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

The general rule: no reporting for the value at death

Beneficiaries generally pay no tax on amounts up to the TFSA's fair market value at the date of death, and that amount passes tax-free with no reporting required. Fair market value means the highest price obtainable in an open and unrestricted market between informed, prudent parties dealing at arm's length.

Where a successor holder takes over, the deceased is not considered to receive an amount from the TFSA, and the account continues as a TFSA with its tax-free status intact. One exception is an excess TFSA amount: the successor holder is treated as making a contribution equal to the excess on the first day of the month after death, and if that creates an excess in their accounts it is taxed at 1% per month while it remains. Another is Quebec, which does not recognize the successor holder designation for TFSAs. Even outside the successor holder situation, the value at death still passes tax-free to beneficiaries with no reporting required for that amount. Registered retirement accounts follow separate rules.

Exceptions that can still matter

The excess amount is taxable for each month it stays in the account, up to and including the month of death. If you find over-contributions while gathering records, raise it with an accountant before filing.

Income earned after death

Post-death growth is where tax usually arises. For a deposit or annuity TFSA without a successor holder, the account stops being a TFSA on death, and all earnings after death are taxable to the beneficiary, with interest reported on a T5. Legally, a deposit that stops being a TFSA is deemed disposed of at fair market value immediately before that time.

For a trust TFSA, income earned during the exempt period and paid to beneficiaries is taxable to them, and payments above the value at death appear in box 134 of the T4A. 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. Issuers report taxable payments to Canadian-resident beneficiaries on a T4A with no withholding required. For non-resident beneficiaries, the issuer reports on an NR4 and must withhold and remit non-resident withholding tax.

If a trust TFSA still exists after the exempt period, it becomes a taxable trust that files a T3 return each year.

Survivors and the exempt contribution

A surviving spouse or common-law partner who receives TFSA payments as beneficiary can contribute them to their own TFSA as an exempt contribution that does not affect their own contribution room. The amount must be received and contributed by December 31 of the year following death and cannot exceed the value at death. Form RC240 must go to the CRA within 30 days of the contribution, unless the CRA allows a later date.

• No exempt contribution is possible if the deceased's TFSA had an excess amount, or if payments are received by more than one survivor.
• From January 1, 2026, post-death earnings up to the end of the rollover period can be designated as exempt contributions.
• A non-survivor beneficiary, such as a child, can contribute only into available room and cannot designate an exempt amount.

What to do next

• Get the TFSA's value at the date of death from the issuer.
• Ask whether the issuer holds the TFSA as a trust, deposit or annuity.
• Check whether the deceased had any excess TFSA amount.
• Collect any T4A, T5 or T3 slips issued after death and pass them to the right taxpayer.
• Tell a surviving spouse about the RC240 deadline.
• Confirm the 2026 rule change with the CRA or an accountant, since it is recent.

If the estate is complex or a Quebec resident is involved, a lawyer or accountant can confirm how the rules apply.

Frequently asked questions