TFSA Value at Date of Death vs Later Value in Canada

You may have received a payment from a deceased person's TFSA and noticed it does not match the balance on the date they died. The account may have grown, or lost value, between death and the payout. That raises a fair question: which number does the tax system use?

In general, the date-of-death value sets the tax-free part, and later growth is treated differently. This article explains what that value means, how the later amount is taxed, and what to check if the figures on your slips look off.

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

What "fair market value at death" means

The tax-free part of a TFSA left to a beneficiary is measured by its fair market value, often shortened to FMV, on the date the holder died. 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 a simple savings account, that is usually just the balance. For investments such as funds or shares, it is the value of those holdings on that date, which is why the issuer's statement as of the date of death matters.

The tax-free part and the taxable part

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 for it. Earnings made after the date of death and before the estate is settled are taxable, because the tax-free part is limited to the value at death.

So if the account grew after death, the extra growth is the part to look at. If it shrank, the tax-free part is still described by reference to the value at death, so confirm the figures with the issuer or an accountant.

How the type of account changes the result

• Successor holder: if a surviving spouse or common-law partner takes over as successor holder, the deceased is not considered to receive an amount from the TFSA on death, and the account continues as a TFSA with its tax-free status intact.
• Deposit or annuity TFSA with no successor holder: the account stops being a TFSA on death, all earnings after death are taxable to the beneficiary, and interest is reported on a T5.
• Trust-governed TFSA with no successor holder: the trust keeps limited TFSA treatment during the exempt period, which ends at the earlier of the end of the year following the year of death or when the trust ceases to exist.

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. Issuers report these taxable payments to Canadian-resident beneficiaries on a T4A, with no withholding required.

Special cases to watch for

• Trust TFSA that continues past the exempt period: it becomes a taxable trust, must file a T3 Trust Income Tax and Information Return every tax year it continues, and issues T3 slips for taxable distributions. Its first taxable year includes post-death income or gains not paid out during the exempt period.
• Non-resident beneficiaries: taxable trust payments are reported on an NR4, and the issuer must withhold and remit non-resident withholding tax.
• Survivors: starting January 1, 2026, earnings accrued in the TFSA after death, up to the end of the rollover period, can be designated as exempt contributions. This is recent, so confirm the current CRA wording.
• Qualified donee named as beneficiary: funds generally must be transferred within 36 months of death, and the executor may then ask the CRA to amend the deceased's return to claim the donation credit.

What to do next

• Ask the issuer for a statement showing the account value on the date of death.
• Compare that figure with the amount you actually received and note the difference.
• Check your slips: a T5, T4A or T3 may show the taxable part, and box 134 of the T4A shows payments above the value at death.
• Find out whether the account was held directly, as a deposit or annuity, or in a trust, since the reporting differs.
• If a survivor is involved, ask about designating an exempt contribution before the deadlines pass.
• Speak to a lawyer or accountant if the numbers do not reconcile or if the estate is not yet settled.

Frequently asked questions