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Post Death Decline in the Value of RRSPs and RRIFs

Executive Summary

Death is often a difficult time for families and dealing with their loved one’s taxes can often be the last thing on their minds, which can cause significant delays in distributing the assets of the deceased. These types of delays allow ample time for market fluctuations and therefore possible decreases in the value of a deceased’s RRSP or RRIF’s. The 2009 federal budget addressed this issue by announcing that, effective for RRSP and RRIF distributions that took place after 2008, RRSP/RRIF losses experienced after death will be recognized on the final tax return of the deceased’s annuitant. Although the date of death amount will still be reported on the final return of the deceased, an offsetting deduction will also be allowed.

What You Need to Know

In the eyes of the CRA, when taxpayer dies in Canada they are deemed to have sold all of their assets immediately before death. For registered assets, such as RRSP’s or RRIF’s, tax is generally based upon Fair Market Value (FMV) of the plan at the time of the annuitant’s death. Due to a number of factors there can be a significant delay between the time of death and when the funds are actually distributed. This delay can leave time for the value of the RRSP/RIFF’s to fluctuate, resulting in either a higher value then the FMV at the time of the annuitant’s death or a lower value. To avoid unfair taxation to the annuitant’s beneficiaries or estate, the CRA deals with these fluctuations in one of two ways:

  • In the event that the value of the account increases before final distribution, tax is still paid based on the FMV at the time of the annuitant’s death.
  • If the account value decreases before final distribution, a deduction can be used to offset the loss the beneficiary would have taken if tax was still paid based on the FMV at the time of an annuitant’s death. The deduction will generally be calculated as the difference between the FMV of the RRSP/RRIF at the time of death and the total of all amounts distributed from the RRSP/RRIF after the annuitant’s death.

The FMV of at the time of death would still be issued in the form of a T4RSP tax form, however a RC249 would also be issued stating the decrease in value and therefore allowing for the deduction to offset the difference in value.


When Jane died her RRSP had a FMV of $125,000. There was a 6-month delay between her death and when the funds were actually distributed to her beneficiary, John. In that time there was a significant downturn in the markets and Jane’s RRSP lost 20% of its value. At the time of final distribution $100,000 was paid to John as the beneficiary and a T4RSP for $125,000 was issued in Kim’s name to be included in her final tax return. The RRSP issuer also completed a RC249 form that confirmed the amount paid to Steve. This RC249 form will be filed with Jane’s final tax return and will support the deduction in post death loss in her RRSP. As a result, Janes estate paid tax on $100,000 as opposed to the $125,000 that her RRSP was valued at when she died.

The Bottom Line

With all the emotional stress, possible tension among family members, and sometimes even the lack knowing about assets, it is not uncommon for there to be delays between the time of an individual’s death and the time when their assets are actually distributed. These delays can allow time for fluctuations in account values, which can have some unintended tax consequences.