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Published: October 29, 2021

Last Updated: January 17, 2022

Introduction: Registered Retirement Savings Plans (RRSPs)

Registered retirement savings plans (RRSPs) are specifically designed to promote and encourage retirement savings for Canadian taxpayers. Under subsection 146(1) of the Income Tax Act, RRSP means a retirement savings plan that is accepted by the Canada Revenue Agency (CRA) for registration for the purpose of the Tax Act and is in compliance with the requirements under subsection 146(1) of the Tax Act.

RRSPs allow taxpayers the opportunity to contribute a portion of their earned income into a tax-deferred trust (being the RRSP) which is held for the benefit of the taxpayer by their financial institution (also known as the issuer). In addition, taxpayers who contribute a portion of their earned income into their RRSPs are eligible for a deduction for their contribution. But what happens to a taxpayer’s RRSPs upon or as a result of death? This article provides top Canadian tax lawyer tax guidance on the designation of beneficiary or beneficiaries of an RRSP.


Beneficiary Designation for a Registered Retirement Savings Plans (RRSPs) and Subsection 51(1) of Ontario’s Succession Law Report Act

An RRSP holder may designate more or more beneficiaries for his or her RRSPs. An RRSP beneficiary may be designated through an RRSP contract or in the RRSP holder’s will. Pursuant to subsection 51(1) of Ontario’s Succession Law Reform Act, an RRSP holder “may designate a person to receive a benefit payable under a plan on the participant’s death, (a) by an instrument [..]; or (b) by will, and may revoke the designation by either of those methods”. However, it is possible for an RRSP to have no beneficiary designated. If there is no beneficiary designation, or if the designation is deemed invalid, Ontario’s Succession Law Reform Act will govern the distribution of the deceased person’s RRSPs.


Significant Legal Concepts – Issuer, Earned Income

An issuer is the financial institution with whom the taxpayer has a contract or an arrangement which constitutes a retirement savings plan, pursuant to the Act (subsection 146(1), Income Tax Act).

For the purpose of RRSPs, earned income means the “total of all amounts each of which is” the taxpayer’s income for the year, subject to certain restrictions including, but are not limited to, property income and the taxpayer’s Canadian residence status (Subsection 146(1), Income Tax Act).

An annuity includes an amount payable on a periodic basis that can be payable under a contract, will or trust or otherwise (subsection 248(1), Income Tax Act).


A Man Fights the CRA for a $140,000 Tax Liability After Wife’s Death

According to Global News, Mr. Brian Kirkham’s wife passed away in 2016. At the time of Mrs. Kirkham’s death, Mr. Kirkham was listed as beneficiary under her RRSPs. As such, upon Mrs. Kirkham’s death, her RRSPs were transferred to Mr. Kirkham’s RRSPs “as spouse and beneficiary”. The transfer of funds should have resulted in a “neutral tax situation where no tax is payable”. However, Mr. Kirkham indicates that the CRA insisted that he owed income tax on the funds which were approximately $240,000 transferred to his RRSP from his deceased wife’s RRSP, as a result of her death. Mr. Kirkham explained that the CRA assessed his tax on the total amount as if he has received it as “income going into my bank account and pocket to spend”. In addition, Mr. Kirkham explained to Global News, he was charged a penalty on his personal RRSP for over contribution and therefore the CRA claimed that he had an in excess of  $139,000 tax liability.

For many years after his wife’s death, Mr. Kirkham and his accountant attempted to contact CRA to resolve the non-compliance, but they did not succeed. According to Global News, at one point Mr. Kirkham was contacted by CRA’s Collections Department in an attempt to collect the $139,000 in tax liability, which CRA claimed he owed.

As such, Mr. Kirkham reached out to Consumer Matters to assist with his non-compliance issue. On October 14, 2021, during an interview with Global News, Mr. Kirkham explained that one week and a half after contacting Consumer Matters, he received a telephone call from CRA indicating that they have reviewed his file and resolved the issue, without providing him without any further explanation.  Taxpayers should retain an experienced Canadian tax lawyer for legal tax advice and appropriate tax guidance as soon as they have a dispute with the CRA.


Taxation of RRSPs

When taxpayers die, they are considered to have received their RRSPs, immediately before death, at the fair market value of all property held in the RRSP at the time of death. This amount includes all other amounts that the deceased taxpayer received from the RRSP in that year that must be reported on their income tax returns and benefits, for the year of death. Amounts remaining in a taxpayer’s RRSP upon death, including income earned in the RRSP after the taxpayer’s death are reported in the beneficiary’s income tax returns and benefits, for the taxation year it was received.

However, a deceased person is not considered to have received an amount from an RRSP, at the time of death, if the deceased person has a surviving spouse or common-law partner, at the time of death, and both of the following conditions are met: (1) the surviving spouse or common-law partner is designated in an RRSP contact or deceased person’s will as the sole beneficiary of the deceased person’s RRSPs; and (2) by December 31 of the year following the year of the RRSP holder’s death, all property in the RRSP is directly transferred to any of the following: (i) the surviving spouse or common-law partner’s RRSP; (ii) Pooled Registered Pension Plan (PRPP); (iii) Specified Pension Plan (SPP); or (iv) a Registered Retirement Income Fund (RRIF), under which the surviving spouse or common-law partner is the member, or to a financial institution for the purpose of acquiring annuity for the surviving spouse or common-law partner.



Pro Tax Tips – Tax Guidance and RRSPs

RRSPs are tax planning tools that can be used for various tax planning objectives. Yet, the designation of a beneficiary, transfers of RRSP property upon death and over contributions into RRSPs can create immense financial consequences for a taxpayers’ surviving spouse or common-law partner. In addition, Mr. Brian Kirkham’s CRA problems demonstrate the significance of RRSP beneficiary designation and the potential issues that could arise as a result of RRSP transfers, upon the plan holder’s death.

If you have been (re)assessed by the CRA for over contributing into your RRSPs you may qualify for relief from the 1% monthly penalty. If you have questions regarding the designation of beneficiary or beneficiaries for RRSPs or the taxation of RRSPs upon or as a result of death, please contact our tax law office for tax guidance from one of our top Canadian tax lawyers.


"This article provides information of a general nature only. It is only current at the posting date. It is not updated and it may no longer be current. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in the articles. If you have specific legal questions you should consult a lawyer."


The general rule for an RRSP is that the value of the RRSP at the date of death of the annuitant is included in the income of the deceased for the tax return for the year of death. However, income tax may be deferred if the beneficiary of the RRSP, RRIF, or estate is: the spouse or common-law partner.

If you die after you retire, the plan may pay a death benefit to your beneficiary(ies) based on the pension option you chose when you retired. The beneficiary(ies) you name while you are working are entitled to a portion of your pension if you die before retirement.

An RRSP must mature by December 31 of the year in which you turn 71. On maturity, the funds must be withdrawn, transferred to an RRIF, or used to purchase an annuity. You will not be able to make any further contributions to your individual RRSP after this date.

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