RRSP and TFSA Rollover to a Surviving Spouse

Upon the death of a spouse in Canada, specific rules govern the transfer of Registered Retirement Savings Plans (RRSPs) and Tax-Free Savings Accounts (TFSAs) to the surviving spouse. These “rollover” provisions are designed to allow for the tax-deferred or tax-free transfer of these assets, preserving their registered status and preventing immediate tax consequences.

RRSP Rollover to a Surviving Spouse

When an RRSP annuitant (the holder of the RRSP) dies, the fair market value (FMV) of the RRSP is generally considered to be received by the deceased immediately before death, making it taxable income on their final tax return. However, a significant exception exists if the surviving spouse or common-law partner is designated as a “qualified beneficiary.”

Definition of RRSP Rollover:

An RRSP rollover to a surviving spouse refers to the tax-deferred transfer of the deceased’s RRSP assets to the surviving spouse’s own RRSP, Registered Retirement Income Fund (RRIF), Pooled Registered Pension Plan (PRPP), Specified Pension Plan (SPP), or to purchase an eligible annuity. This allows the surviving spouse to continue benefiting from the tax-sheltered growth of the funds and defer taxation until they are withdrawn from their own registered plan.

Conditions and Process:

• Designation: The surviving spouse or common-law partner must be designated as the beneficiary in the RRSP contract or in the deceased’s will.
• Transfer Deadline: The transfer must generally be completed in the year the refund of premiums is received or within 60 days after the end of that year.
• Tax Implications:
  • If the rollover conditions are met, the deceased is not considered to have received the RRSP amount, and it is not taxed on their final return.
  • The surviving spouse reports the transferred amount as income on their tax return but then claims an offsetting deduction for the qualifying transfer. This effectively makes the transfer tax-free at the time of rollover.
  • The surviving spouse will pay tax on the funds only when they are withdrawn from their own RRSP, RRIF, or other eligible plan.
• Age Limit: If the surviving spouse is 71 years old or younger, they can roll the funds into their own RRSP. If they are older than 71, the funds must generally be rolled into an RRIF or used to purchase an eligible annuity.

The rules for TFSAs upon death are simpler, as the account is already tax-exempt. There are two main ways a TFSA can be transferred to a surviving spouse: as a “successor holder” or as a “beneficiary.”

TFSA Rollover to a Surviving Spouse

A TFSA rollover to a surviving spouse allows the deceased’s TFSA assets to be transferred to the surviving spouse’s TFSA without affecting their own TFSA contribution room or triggering immediate tax consequences.

Conditions and Process:

1. Successor Holder:

   • Definition: If the surviving spouse or common-law partner is named as a “successor holder” in the TFSA contract, they automatically become the new holder of the TFSA immediately upon the death of the original holder.
   • Tax Implications: The TFSA continues to exist as a tax-free account under the new holder’s name. Any income earned within the TFSA, both before and after the original holder’s death, remains tax-free. No special forms or designations are typically required by the surviving spouse. This is generally the simplest and most advantageous option.

2. Beneficiary (for spouses not named as successor holder):

   • Definition: If the surviving spouse or common-law partner is named as a “beneficiary” (but not a successor holder), they will receive the fair market value of the TFSA at the date of death tax-free.
   • Tax Implications:
     • The amount up to the fair market value at the time of death is received tax-free by the beneficiary.
     • Any income or gains earned after the date of death within the deceased’s TFSA become taxable to the beneficiary.
     • To contribute the received funds to their own TFSA without impacting their contribution room, the surviving spouse must designate the amount as an “exempt contribution” by completing Form RC240, Designation of an Exempt Contribution – Tax-Free Savings Account (TFSA), and submitting it to the CRA within 30 days of making the contribution (or as otherwise permitted by the Minister of National Revenue). The contribution must be made during the “rollover period” (generally by December 31 of the year following the year of death).

Sources:

• Canada Revenue Agency (CRA). “Death of an RRSP Annuitant.” Canada.ca, updated 2025-01-21. Available at: https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/rc4177/death-rrsp-annuitant-a-prpp-member.html
• Canada Revenue Agency (CRA). “Death of a TFSA holder.” Canada.ca, updated 2025-01-24. Available at: https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/tax-free-savings-account/death-a-tfsa-holder.html
• Canada Revenue Agency (CRA). “Amounts paid from an RRSP or RRIF upon the death of an annuitant.” Canada.ca, updated 2025-02-12. Available at: https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/rrsps-related-plans/transferring/amounts-paid-rrsp-rrif-upon-death-annuitant.html
• Sun Life. “What’s The Best Way To Leave Your TFSA To Your Spouse?” Sun Life Canada, updated 2024-07-23. Available at: https://www.sunlife.ca/en/investments/tfsa/whats-the-best-way-to-leave-your-tfsa-to-your-spouse/