When the annuitant of a RRIF or RRSP dies the fair market value of the RRIF or RRSP right before death is included on their final tax return, unless there is a spouse or dependent minor who can take over the account tax-free.
There is often a time delay between the death of the annuitant and ultimate sale of the assets in the RRIF or RRSP. If there has been a decline in market value in the meantime, the tax bill could eat away a larger portion of the proceeds.
An Example
A person dies holding $150,000 worth of shares of XYZ Co. inside their RRIF. Six months later, when the shares are paid out, the fair market value had fallen 33% to $100,000.
Prior to 2009, this situation would have seen the full $150,000 included on the deceased’s income tax return despite the fact the estate only received $100,000. If the $150,000 were taxed at a marginal rate of 45%, the tax bill would have been $67,500 on proceeds of $100,000 ultimately received.
RRIF & RRSP Losses Following Death Allowed
To address this issue the federal government announced changes that allow the post-death decrease in market value in an RRSP or RRIF to be deducted from the value of the RRSP and RRIF at the time of death.
In the above example, the decrease in market value of $50,000 would be deducted and the tax bill reduced by $22,500 to $45,000.
Limits
The rule is in effect from January 2009 forward. And generally, this rule applies if the final distribution from the estate is made before the end of the year following the year of death but the CRA will evaluate and waive this condition on a case-by-case basis.
Related Articles
- Transferring Capital Losses To A Spouse At Death
- Estate Planning 101 – Death, Taxes and Your RRSPs and RRIFs
- What Investments Can I Hold in My RRSP, RRIF, TFSA or RESP?
- No Carryover Of Beneficiary Designation To A RRIF
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{ 17 comments… read them below or add one }
Do you know what the tax implications would be for a nondependent daughter, named beneficiary – living in the United States who wants to redeem a RRIF and move the money to the U.S. Or would it be easier to put it into the estate and pay the necessary taxes that way.
@Beverly: The tax on death will occur regardless. It is more efficient to name the daughter as the beneficiary since the proceeds of the RRIF can be paid immediately.
In the event of Death-What is the difference between the income tax rate paid on the final personal tax and the estate tax rate? Are all RRIF’s considered part of the final personal income tax whether benefactors specifically named or not ie to estate? Thanks
@Susie: There is no estate tax in Canada. When you die, Canada considers you to have sold everything you own immediately before death. This results in a tax event: Your RRSP/RRIF is added to your income and any other investments are considered sold.
The RRSP/RRIF is paid directly to the beneficiaries and there is no tax withheld.
my mother in law passed away in nfld-leaving her 5 children as designated beneficiaries from a rrif.she also left property to some not my husband.others. the estate now owes taxes. will my husband now
have to give back the money he inhereted. In her will
it says use real property to pay off debt.
please i need an answer.
thank you
My dad passed away and left his RRSP’s to me and my sister, and the bank is claiming that we can only take the money as cash, and then pay the taxes on that money. Is this true or can we avoid paying high taxes by say, leaving the money in RRSP or ????
When your father passed away “he” was considered to have de-registered the account on the date of death and you and your sister were considered to have acquired it on the date of death. From the date of death forward, you and your sister are responsible for the income taxes.
The de-registration on death may or may not be taxable to you depending on whether the estate could pay the tax bill.
My father left a RRIF in my aunt’s name. The will goes to next of kin which is me and my 2 sisters. Who has to pay the taxes on the rrif? the rrif being about 83,000. thanks.
The RRIF is taxed on your fathers final return. If the estate cannot pay, the aunt will be charged the proportional tax due on the RRIF received.
As I understand, the estate will pay the taxes, so you will recieve the 83,000. If the estate does not have enough funds, then the estate will become bankrupt. Now at that point I am unsure if they can come after other family for that or not, but it was explained that the money you get is not touched. I am going through it now if I find out more I will pass it on.
The go after the beneficiary of the RRIF.
My question is regarding the RRIF of a deceased person going to the successor.
My question is….
When a person passes away and the RRIF is transferred to a successor, what is the protocol for the annual payment? If the scheduled payment is Dec. 31st, and the transfer is done in October, does the payment still happen in December for the successor, who then becomes liable for the income, or can the payment be made to the annuitant (the deceased), before the transfer of ownership to the successor?
Thank you!
Col
Hello Col,
The successor annuitant simply takes over the payments. Therefore, the annual minimum is based on the deceased’s life.
The minimum payment for 2010 would be based on the fair market value of the RRIF at the close of business on December 31, 2009 and the percentage on the life of the deceased. The minimum payment may be taken at any point after January 1, 2010 and December 31, 2010.
The attribution of the payment is in the hands of whomever received the payment. If the payment was received by the original annuitant before their death, then the payment is taxed in their hands. If the successor annuitant receives the payment, it is taxed in their hands.
Hello Tax Guy:
In your opening remarks, you stated that the “fair market value of the RRIF or RRSP right before death is included on their final tax return, unless there is a spouse or dependent minor who can take over the account tax-free.” My father has an RRIF account in his name only – under what conditions would my mother be able to take over the RRIF account tax free when my father passes away? She is a retired senior with limited income.
Thanks for your help with this.
Barb
Your father would have to name a beneficiary or successor annuitant. A named beneficiary will receive the value of the account. The successor annuitant, which is the spouse can take over the payments.
In the event no one is named on the account itself, the proceeds pay to the estate. If there is a spouse, he or she can elect to take the RRSP/RRIF on a rollover basis.
Can registered accounts (presently LIF, RRSP and TFSA) be rolled over to an ex-wife’s RRSP without incurring those horrendous taxes?
If not, I would assume the only way to avoid the high taxes, would be some form of life insurance, would you agree?
Stephen,
If you designate your spouse as either successor annuitant or as the direct beneficiary of the RRSP, RRIF, LIF, LIRA, LRIF etc. This allows for tax-deferred rollovers at death. Beneficiary designations can also be made via your Will.
With the TFSA you can name your spouse as survivor or the beneficiary. Survivor allows the spouse to take over the TFSA following death.
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