Tax-Free Savings Account (TFSA) - Taxation upon death
Spouse or common-law partner is the sole beneficiary:
- Spousal assumption - (Canada Revenue Agency's (CRA) preferred direction) - The spouse or common-law partner can assume the TFSA with all ownership rights and the TFSA will maintain its tax exempt status.
- Transfer to surviving spouse's TFSA - The spouse or common-law partner could choose to transfer the funds to his/her TFSA. This transfer must be done by the end of the year, after the year of death of the spouse. If the surviving spouse chooses this option, the surviving spouse must designate these contributions as exempt contributions by filing Form RC240 with CRA, within 30 days of making the contribution. Upon receiving this prescribed form, CRA will disregard these contributions in the calculation of the TFSA room limit. Any amount exceeding the Fair Market Value (FMV) at the date of death may be considered to be excess contribution to the spouse. Spousal assumption of the TFSA prevents this possible excess contribution.
- Direct payment - The spouse or common-law partner will receive a cheque for the proceeds or can request a transfer to a Sun Life Financial non-registered account.
|Spousal assumption||Transfer to spouse's TFSA|
|Form RC240 to be filed with CRA does not have to filed.||Form RC240 has to be filed with CRA within 30 days of transferring funds.|
|No excess contribution - CRA attributes any contributions/withdrawals prior to date of death, to the deceased. No penalty.||Any amount exceeding the FMV at death, that is transferred to the spouse's TFSA, may be considered excess contribution to the spouse if it exceeds the spouse’s existing available room and will be subject to penalty.|
|No penalty incurred because excess contribution is not an issue in a spousal assumption situation.||If Form RC240 is not completed, all amounts transferred to the spouse will be subject to a penalty at year end.|
|Spouse now owns the deceased’s policy as successor owner and can transfer to any other TFSA owned by the spouse.||Spouse owns the policy as the original owner.|
If the spouse or common-law partner is not the sole beneficiary, the value of the TFSA will be paid to the beneficiary directly by cheque or transfer to a Sun Life Financial non-registered account.