Are TFSAs taxable in the estate?

March 1, 2016

The deceased estate will have to meet funeral expenses, probate charges, and fees, which are not deductible. The Canada Pension Plan pays a flat death benefit to the estate, taxable in the hands of the beneficiary, usually the spouse or common-law partner. Any unused sick leave is considered a “death benefit”, also taxable in the hands of the beneficiary.

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TFSAs are not taxable. The value of the assets is considered to have been received by the plan holder at death. TFSA income is not taxable – therefore this money is tax-free. Bear in mind that any income earned within the plan after death is taxable in the hands of the beneficiaries.

A few changes have been revised in  December of 2015:

  • The new LIBERAL government announced that they would reduce the contribution amount for TFSA and re-introduce indexing to inflation for the annual limit. However, they also said they would still allow Canadians to keep the full $10,000 of contribution room for 2015, whether they used it or not.
  • Effectively they “grandfathered” the $10,000 TFSA limit for 2015 meaning that there is really no urgency to rush out and get that $10,000 contributed for 2015. That contribution room will carry forward indefinitely.
  • The total contribution amount for January 1st 2016, for a Canadian who has never contributed to a TFSA will be $46,500, if the individual was 18 or older in 2009 when the TFSA was created.

Canada Revenue Agency (CRA) has a 33-page guide, found on its web site (see below) to guide you in the preparation of a final return for a deceased person. CRA must also have supporting documents, such as a death certificate and a copy of the last will and testament in order to process the last tax return.

An executor can file optional tax returns for the year of death, which may or may not reduce or eliminate tax that would otherwise have to be paid. These returns are for things such as:

  • a testamentary trust,
  • a business in which the deceased was a proprietor or partner, and
  • a return for “rights and things” dealing with Old Age Security payments that were due before the date of death, unpaid dividends declared before the date of death, uncashed bond coupons, and money owed by an employer before the date of death.

Submitting a final tax return can be a daunting task.Consider the help of a professional tax planner such as a CA.

CRA form: http://www.cra-arc.gc.ca/E/pub/tg/t4011/t4011-13e.pdf

 

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