- The TFSA's value at death is not reported as income on the final return, but earnings after death are taxable to the beneficiaries when they receive them.
- A surviving spouse or common-law partner named as successor holder takes over the account, and growth after death stays sheltered.
- If no successor holder or beneficiary is named, the TFSA goes to the estate and is distributed under the will.
When someone dies, many families expect a large tax bill on everything the person owned. A Tax-Free Savings Account (TFSA) is treated differently from an RRSP, but the details depend on who is named on the account and what happens after death.
This article explains the tax treatment only. It compares the three usual routes: a successor holder, a named beneficiary, and no designation at all. It does not cover how joint accounts pass to a survivor.
What happens to the TFSA at the moment of death
The holder is considered to have received the account's fair market value immediately before death. Even so, no TFSA income is reported on the deceased's final return or on any optional return.
The tax issue is what happens afterward. Earnings that build up after the death are taxable to the beneficiaries in the year they receive them. The tax-free treatment is not unlimited once the holder has died, unless a successor holder takes over.
Route 1: a successor holder
A surviving spouse or common-law partner who is named as successor holder in the TFSA contract or the will takes ownership of the TFSA at death. Growth after death stays sheltered from tax, and the deceased is not considered to have received any amount.
Taking over the account does not affect the successor holder's own contribution room, as long as the deceased's TFSA had no excess amount. Whether someone other than a spouse or common-law partner could take this route depends on your situation, so it is worth confirming with a lawyer.
Route 2 and Route 3: a beneficiary, or the estate
A family member, another person or an organization can be named as TFSA beneficiary. A surviving spouse who is named as beneficiary instead of successor holder is in this group. If no successor holder or beneficiary is named, the TFSA goes to the estate and is distributed under the will.
| Who is named | Tax treatment of growth after death |
|---|---|
| Spouse or common-law partner as successor holder | Growth stays sheltered; nothing is deemed received |
| Beneficiary (including a spouse named as beneficiary) | Earnings after death are taxable to beneficiaries when received |
| No one named | Goes to the estate and is distributed under the will |
The wording on the account matters. Naming a spouse as beneficiary is not the same as naming that spouse as successor holder, and the tax result can differ.
Where the income is reported and the Ontario probate angle
A T3 Trust Income Tax and Information Return is generally filed for the estate if it realizes any gain or receives any payments after the death. Amounts the estate allocates to beneficiaries are generally included in the beneficiaries' income and reported to them on T3 slips. Income the estate keeps is taxed in the estate.
For Ontario's Estate Administration Tax, the estate value leaves out a TFSA that has a beneficiary designation. A TFSA that falls into the estate because nobody was named is not covered by that exclusion, so it can be part of the estate value on which that tax is charged.
CRA describes a route for survivors in Quebec, which does not recognize successor holder designations, where a survivor who is a TFSA beneficiary but not the successor holder can contribute amounts received to their own TFSA as an exempt contribution, without using their unused contribution room. On that route, the contribution must be made by December 31 of the year after the death, and Form RC240, Designation of an Exempt Contribution TFSA, must be filed within 30 days of the contribution. Whether a similar route is open to you in Ontario depends on your situation, so it is worth confirming with a lawyer.
What to do next
- Find the TFSA contract and check whether it names a successor holder or a beneficiary.
- Check the will for any reference to the account.
- Ask the financial institution how it treats the account and what paperwork it needs.
- Keep records of the account's value at death and of any earnings afterward.
- Ask whether the estate will need to file a T3 return.
- Speak with a lawyer or accountant before distributing funds, especially if the account has no named person or the wording is unclear.
Frequently asked questions
Is the TFSA included as income on the final return?
No. The holder is considered to have received the fair market value just before death, but no TFSA income is reported on the final return or any optional return.
Is growth after death taxed?
It depends on who receives the account. If a spouse or common-law partner is the successor holder, growth stays sheltered. Otherwise, earnings after death are taxable to the beneficiaries in the year they receive them.
Does a successor holder lose contribution room?
Not as a result of taking over the account, as long as the deceased's TFSA had no excess amount.
What if nobody was named on the TFSA?
The TFSA goes to the estate and is distributed under the will. Income the estate keeps is taxed in the estate, and income allocated to beneficiaries is generally taxed in their hands.
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
Links go to official government, court and regulator pages. The law changes — confirm you are reading the current version.
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