Can Unused RRSP Contribution Room Be Used After Death in Canada?

As an executor, you may notice that the deceased had unused RRSP room, or that a spouse could still put money into a plan, and wonder whether that can soften the tax bill on the final return. It is a sensible question, because the RRSP itself can create a large amount of income in the year of death.

This article explains how the RRSP income arises and which reductions the tax rules clearly provide. Whether unused room or a late contribution can offset that income turns on details of the person's situation, so that part is best confirmed with an accountant or lawyer.

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

Why the final return can show so much RRSP income

When the annuitant of an unmatured RRSP dies, the CRA treats the annuitant as having received, immediately before death, an amount equal to the fair market value of all property held in the plan. The Income Tax Act sets this out in s. 146(8.8), less certain amounts payable to a surviving spouse or common-law partner.

That amount is added to the deceased's other income for the year of death and taxed at graduated rates. Provincial or territorial tax applies on top of the federal rates. It is reported on the final return, and the CRA slip shows it in box 34 of a T4RSP.

What the tax rules clearly allow to reduce it

The Act allows the deemed amount to be reduced by a formula, so the final-return income is lowered by the amount of a refund of premiums paid to qualifying survivors. A qualifying survivor is the spouse or common-law partner, or a financially dependent child or grandchild.

• A spouse or common-law partner who is the sole designated beneficiary can avoid the deemed receipt if all the property is transferred to their RRSP or RRIF, or otherwise rolled over, by December 31 of the year after the year of death.
• A qualifying survivor who receives a refund of premiums reports it in their own income and can deduct it by transferring it to their own plan.
• If the plan falls in value after death, the legal representative can ask for the decrease to be deducted on the final return.

Unused contribution room and spousal contributions

Section 60(l) of the Income Tax Act allows a deduction for RRSP premiums, and for certain refund-of-premiums amounts transferred to a registered plan within 60 days after year end. That is the general deduction rule, but it does not by itself tell you whether the deceased's unused room can be used, or whether a contribution made after death counts.

Those questions depend on the contribution room available, who the contributor and annuitant were, and the timing. Treat them as open until an accountant has reviewed the deceased's records and the CRA's current guidance.

Other points that affect the result

• A decrease-in-value deduction is generally unavailable if the plan held a non-qualified investment after death, or if the final distribution is made after the end of the year following the year of death, though the CRA may waive the latter case by case.
• No decrease-in-value deduction is available when the amount was never included in the deceased's income, for example where the full amount was rolled to the spouse.
• An increase in value after death is included in the income of the beneficiary or estate that receives it, for the year it is received.

What to do next

• Get the latest RRSP statements and any T4RSP slips.
• Find out who is named as beneficiary and whether a surviving spouse, common-law partner or dependent child may qualify.
• Note the plan's value at death and any later change in value.
• Ask an accountant whether unused room or a contribution can reduce final-return income in this case.
• Keep copies of any letters or forms sent to the CRA.

Frequently asked questions