Posted on November 13, 2018 in Blog: Personal Tax Tax Planning
TFSA & DEATH - Have you planned what will happen with yours if you die?


If you own a TFSA you undoubtedly started it because of the ability to invest and earn dividend or interest income as well as make a capital gain without paying tax.

Unfortunately, similar to any investment vehicle, there may be complications in the event of the death of a taxpayer. Consider the following.

Success Holder

If you have named a survivor who is your spouse or common-law partner as a successor holder then that individual acquires all the rights of the original holder and thus becomes the new account holder.

With this scenario the TFSA does not terminate and thus there are no tax consequences to the new account holder.  An additional benefit may accrue if the original holder has over contributed before their demise and the new account holder has contribution room in their TFSA.  Should this situation arise the over contribution by the deceased can be absorbed by the new account holder thereby eliminating any potential future over contribution penalties. (currently at 1% per month)

Rollover Period

Assume for a moment that the deceased did not designate the spouse or the common-law partner as a successor holder.  What then?

If the spouse or the common-law partner named in a will are accorded an inheritance that includes the TFSA the TFSA can be transferred to their TFSA within a prescribed time period, the “Rollover Period”.  The rollover time frame is explained as starting at the time of death until December 31 of the following year.  During this rollover period the investment income is sheltered from income tax.

In the event that the beneficiary decides to transfer funds to their own TFSA during the “Rollover Period” these transfers are considered to be “exempt contributions” and as such do not require that the beneficiary have TFSA room.  However, the amount of the transfer is limited to the fair market value (FMV) of the TFSA as at the time of death of the original holder.  Thus, if at the time of death, the FMV was $50,000 but at the time of transfer the value of the TFSA was $55,000 the $50,000 could be transferred without any impact, however, the $5,000 increase could be absorbed by the beneficiary should they have room within their TFSA.  The $5,000 increase in the FMV of the TFSA would be included in the beneficiary’s income in the year of the transfer.


When you die without a spouse or common-law partner as the named successor, the TFSA is collapsed at the date of your death.  The amount of the TFSA can be transferred to the named beneficiary tax-free, but only up to the amount of the FMV of the TFSA at the date of death. Naturally, the beneficiary would need to have TFSA room to absorb the FMV transfer.  For instance, if the beneficiary had $30,000 of accumulated TFSA room and the FMV of the transfer at the date of death was $53,000 which had increased to $55,000 by the date of transfer to the beneficiary, $30,000 could be transferred into their TFSA, and $2,000 would be included in their taxable income.  The remaining assets would still be received without incurring any tax on the transfer, but future income and capital gains on those assets would be taxable for the beneficiary.


It is worth noting that when an exempt contribution of the deceased TFSA is made to the survivor holder’s TFSA that the survivor holder has 30 days from the date of contribution to fill in “Form RC240, Designation of an Exempt Contribution Tax-free Savings Account (TFSA)”.

As is evident there are potential tax complications with a TFSA when a taxpayer passes.  An additional observation is that the rules governing the transfer of assets of the deceased is a provincial or territorial responsibility.  Fortunately, the CRA and their provincial/territorial counterparts have agreed that the named beneficiary on the TFSA application will allow transfers without interjurisdictional complications.  Quebec may be an exception wherein the TFSA transfer hits the estate and the will of the deceased comes into play.

In that TFSAs are registered with the CRA an astute tax payer would want to determine the tax consequences when their TFSA has a named survivor and the tax consequences should the will take precedent.

You may wish to affirm that your CPA is aware that you have a TFSA so that in the event of your untimely demise, your tax advisor is able to assist those that are successor holders or beneficiaries.

**This blog is for information only and not to be used as tax advice or planning without first seeking professional advice. Information is subject to change without notice. 

***This article was originally published in Volume 32, Issue 4 of Business Matters in August 2018. BUSINESS MATTERS deals with a number of complex issues in a concise manner; it is recommended that accounting, legal or other appropriate professional advice should be sought before acting upon any of the information contained therein. Although every reasonable effort has been made to ensure the accuracy of the information contained in this letter, no individual or organization involved in either the preparation or distribution of this letter accepts any contractual, tortious, or any other form of liability for its contents or for any consequences arising from its use. BUSINESS MATTERS is prepared bimonthly by the Chartered Professional Accountants of Canada for the clients of its members. Richard Fulcher, CPA, CA – Author.