Who Pays the Tax on an RRSP or RRIF When Someone Dies in Alberta?

When someone with an RRSP or RRIF dies, families often assume the person named on the plan receives the money and then owes the tax. In most cases the tax works differently, and the surprise tends to land on the executor, not the beneficiary.

This article explains who generally pays, the main situations where tax can be deferred, and why the executor should deal with the Canada Revenue Agency (CRA) before handing money out. Your situation may turn on details, so use this as a map and confirm specifics with a lawyer or accountant.

This article covers the law of Alberta.

The basic rule: the final return carries the tax

The CRA treats an RRSP annuitant as having received, just before death, the fair market value of all the RRSP property. That amount is included in income for the year of death. For a RRIF, the full fair market value is likewise included, and it is reported on the T4RIF (box 18) and line 13000.

A final T1 return must be filed for every person who dies, and the legal representative files it. The tax on the plan value therefore falls on that final return and is paid from the estate.

A named beneficiary does not pay tax again on an RRSP or RRIF amount that can reasonably be regarded as already included in the deceased's income. So the tax on the plan value sits with the estate rather than the beneficiary, which can matter if the estate has little else in it.

Income earned after death

Income the plan earns after death is treated differently. It is taxed to the designated beneficiaries or to the estate, depending on who receives it. The beneficiary, then, is not entirely free of tax: growth after the date of death is a separate matter from the value included on the final return.

Exceptions that can defer the tax

Several exceptions can reduce or defer the amount taxed on the final return. Each has conditions, so timing matters.

For these refund-of-premium rollovers, the transfer must be made in the year the amount is received or within 60 days after year-end. For an RRSP, the survivor must be 71 or younger at year-end.

When the plan pays to the estate: Form T2019

If the plan pays to the estate instead of a named beneficiary, the legal representative and a qualifying survivor can jointly file Form T2019. This treats the amount as the survivor's refund of premiums, which lets the legal representative reduce the amount included in the deceased's income.

Whether the survivor qualifies, and whether this route makes sense, depends on the family and the plan. A lawyer or accountant can confirm before anything is paid out.

Why this matters for the executor, and what to do next

For most people who die between January 1 and October 31, the final return and any balance owing are due April 30 of the following year. If the death was between November 1 and December 31, they are due six months after the date of death. Different dates can apply if the deceased or their spouse or common-law partner ran a business, or if the person died on or before the due date of the previous year's return and that return had not been filed.

A late final return with a balance owing attracts a penalty of 5% of the balance plus 1% for each full month late, to a maximum of 12 months, and the penalty may be higher if a late-filing penalty was assessed for any of the three previous years. Unpaid tax also bears compound daily interest from the day after the due date.

Before distributing property, the legal representative must obtain a clearance certificate. If they distribute without one, they are personally liable for the amounts owing, up to the value of the property distributed. The request, on Form TX19, should be made only after returns are filed and assessed and taxes are paid or secured, not together with the returns. A certificate covers only property known when it was requested.

• Find every RRSP and RRIF and note who is named as beneficiary or successor annuitant.
• Work out the date-of-death value of each plan.
• Check whether a spouse, common-law partner or dependant may qualify for a rollover, and note the deadlines.
• Confirm the final return due date and make sure the estate can pay the tax.
• Hold back enough to cover tax before paying out any plan money you control.
• Request a clearance certificate once returns are assessed and taxes are paid.

A note on federal rules and Alberta authority

The final return and clearance certificate rules are federal and apply across Canada. How an executor's authority to act for the estate applies in Alberta depends on your situation, so it is worth confirming with a lawyer. If you are unsure about your role or the tax position, speak with a lawyer or accountant before distributing anything.

Frequently asked questions