How much tax do you pay on an inheritance from an RRSP or TFSA?

Natalie LeBlanc |

Receiving a large sum of money or other assets from a loved one’s estate shouldn’t add to the grief you’re already experiencing. The tax laws in Canada are quite different than in the USA, but spouses see the most benefit from our rules compared to south of the border, at least when it comes to RRSPs and TFSAs. The estate can still pay taxes on money left behind, but how much depends on the types of accounts we are dealing with. In this article, we’ll cover the rules surrounding RRSP and TFSA beneficiaries.

Taxation of RRSP inheritances  

Owner’s Spouse

If the money you are inheriting is coming from an RRSP or RRIF owned by your spouse, neither you nor their estate pays any tax, under two conditions:

  1. You are named as the beneficiary on file with the RRSP issuer.
  2. The account is rolled into an RRSP in your name prior to Dec 31 in the year following their death (ex: if your spouse died Sep 16, 2021, you have until Dec 31, 2022, to settle their account).

You will still receive a T4RSP for the amount, however, there will be an offsetting RRSP receipt to eliminate the taxes payable.

Owner’s Adult Children/Grandchildren

The situation changes if the money you are inheriting is coming from an RRSP or RRIF owned by one of your parents. While the entire market value of the account is paid to you without tax deducted, the value of the account as of the date of death of your parent is taxable to their estate, meaning the executors may need some of your funds to pay for your parent’s final tax return if there aren’t other assets in the estate to use. If the value of the account increases between the date of death and the day the account is withdrawn, that difference is taxable to you personally and you will receive a tax slip.

Owner’s Dependent Children/Grandchildren

Dependent children are treated similarly to spouses, the exception being that an annuity must be purchased rather than the account being rolled into their RRSP (since anyone under 18 cannot own an RRSP). The annual payments from the annuity are taxable to the child/beneficiary.

RRSP beneficiaries other than family

Non-family member beneficiaries are actually treated the same way that adult children are: the market value at death is taxed to the owner’s final return and any growth between death & when payment is made is taxed to the beneficiary, for which they will receive a tax slip. Again, it is prudent to be mindful that the estate may require some of these funds to pay its tax bill.

Taxation of TFSA inheritances  

Anyone who inherits the balance of a Tax-Free Savings account is not liable to pay taxes on the full market value of the account, nor is the estate. That is the beauty of the “Tax-Free” aspect of the account! 

There is one caveat, however, the same as for the RRSP: any growth between the date of death and the date of payment is taxable to the beneficiary (except for spouses, we’ll cover that below), and you will receive a T4A. The options for re-investing that money also depend on your relationship to the owner:

Owner’s Spouse

A TFSA owner’s spouse can, if they are named as the “Successor Annuitant” on the account, transfer the full balance of the TFSA to their own TFSA account, without using up any of their TFSA contribution room. CRA considers the account yours as soon as your spouse dies, so there is no tax payable on the growth that may occur before you have a chance to sign any claim forms with your TFSA issuer.

Other beneficiaries

Any non-spouse (such as children or friends) would need to have sufficient TFSA contribution room to move the account to a TFSA in their name. As mentioned above, any growth between the date of death and when the account is withdrawn is taxable.


Speak with a professional about your estate plan

The above examples are just two of the types of investment accounts you can open, those for which you can have registered beneficiaries. When you begin to consider any other assets, including property, life insurance, non-registered investments, etc, the picture of your estate’s tax situation can get blurry. It is crucial to speak with your investment advisor, lawyer, and accountant to make sure all the pieces are working for your beneficiaries, not against them, following your passing. The greatest gift you can leave behind for your family is a well-thought-out plan. 



Government of Canada. Death of an RRSP Annuitant. 
Government of Canada. Death of a TFSA Holder. 
Golombek, Jamie. 28 October, 2016. When an RRSP beneficiary faces a tax liability. Advisors Edge.