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What happens to your TFSA upon death?


When an individual passes away, the value of the TFSA is not taxed. However, there are possible implications as the Estate is being settled depending on the province of residence.

What is a TFSA?

A tax-free savings account (TFSA) is a vehicle for Canadian residents aged 18 or older with a valid social insurance number to set aside funds that can grow on a tax-free basis like an RRSP. Unlike an RRSP, TFSA contributions are not tax deductible. Since the introduction of the TFSA in 2009, the maximum contribution amounts are fixed annually and accumulate each year. The maximum cumulative contributions allowed since 2009 are $95,000 (effective January 1, 2024) so the TFSA has become an excellent way to accumulate wealth on a tax-free basis.

What happens to your TFSA on death?

Since contributions to a TFSA are not deductible, withdrawals during lifetime are not taxable nor is the value of the TFSA taxed on death. However, the treatment of the value of the TFSA to your heirs and income earned after death may differ, depending on who inherits the TFSA and where they live.

Successor Holders and Designated Beneficiaries

Some provinces recognize TFSA beneficiary designations. This means that TFSA holders in those provinces may name a successor holder in the TFSA contract or their will. A successor holder is limited to a spouse or common-law partner. A named successor holder automatically becomes the new holder of the TFSA upon the death of their partner. Assuming the TFSA did not hold an excess amount at death, the beneficiary’s unused TFSA room is unaffected by their having assumed ownership of the deceased’s TFSA. They can also choose to transfer the new holdings into their existing TFSA account on a tax-free basis as a qualified transfer, again without affecting their unused TFSA room.

Alternatively, you may name a designated beneficiary of the TFSA. If your spouse or partner is designated as the beneficiary of your TFSA instead of being designated as successor holder, they have until December 31st of the year of death to contribute any payments received from your TFSA, up to the date of death value, into their own TFSA without affecting their own unused TFSA contribution room. To affect this “exempt contribution” they must file form RC240 – Designation of an Exempt Contribution – TFSA within 30 days after the contribution is made. Any income earned between the date of death and the time of transfer is taxable to the surviving spouse.

Designated beneficiaries can also include former spouses or common-law partners, children, a subsequent survivor holder who is the new spouse or common-law partner of the successor holder, and qualified donees. These designated beneficiaries do not pay tax on payments out of the TFSA up to the fair market value of the TFSA on the death of the holder. However, any income earned in the TFSA after death is taxable. A designated beneficiary may contribute any amounts received to their own TFSA, assuming they have unused contribution room available.

TFSAs in Quebec

Unfortunately for TFSA holders in Quebec, the designation of a successor holder is currently only allowed if the TFSA is tied to an insurance policy or annuity contract. Accordingly, most TFSAs in Quebec do not allow the designation of a successor holder. As a result, if the surviving spouse or common-law partner resides in Quebec and inherits the TFSA, they can only be designated beneficiaries and are subject to the rules above, i.e., they should complete Form RC240 to designate any transfer amount as an exempt contribution within 30 days after the contribution is made and declare as income any increase in value of the TFSA after death.

We’re here to help

Have questions related to your TFSA? Want to start the conversation about your overall estate plan? Please do not hesitate to contact a BDO Tax advisor.

The information in this publication is current as of December 12, 2023. 

This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact BDO Canada LLP to discuss these matters in the context of your particular circumstances. BDO Canada LLP, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it. 

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