A tax-free savings account may be tax-free during your lifetime, but what happens after death depends largely on one crucial choice: who receives it.
Naming a spouse or partner as the successor holder or beneficiary can preserve tax-free growth, but leaving the account to someone else, or to the estate, can trigger tax on post-death income and growth.
Earlier this month, the Canada Revenue Agency released a technical interpretation letter responding to a taxpayer’s questions about how much, if anything, he could contribute to his late wife’s TFSA as the successor holder of her account. But before delving into the taxpayer’s questions and the CRA’s responses, let’s recap the basic rules surrounding the death of a TFSA holder.
The fair market value of the TFSA immediately before the holder of a TFSA dies is considered to be received by the holder tax-free. While alive, the holder has the choice of naming either a successor holder or beneficiary. A successor holder can only be a surviving spouse or common-law partner. If you name a successor holder, the TFSA continues growing tax-free after you’re gone and the surviving spouse or partner simply becomes the new TFSA holder.
If you choose not to name your spouse or partner as the successor, you can still name them as the beneficiary of your TFSA. If so, they have until Dec. 31 of the year following the year of your death to contribute any payments that they received out of your TFSA into their own TFSA without it being considered a TFSA contribution that reduces their unused TFSA contribution room.
This is known as an exempt contribution and the surviving spouse or partner must report it to the CRA on Form RC240, Designation of an Exempt Contribution TFSA, within 30 days after the contribution is made.
Prior to Jan. 1, 2026, the exempt contribution was limited to the fair market value of the TFSA’s assets on the date of death. This meant that all income earned on the TFSA assets as well as any increase in the fair market value of the TFSA’s assets after death from the date of death until the date the TFSA was paid out to the spouse/partner beneficiary (or Dec. 31 of the year following death, if earlier) was taxed as ordinary income to the beneficiary. That’s why it was generally advisable to name your spouse or partner as successor holder instead of as beneficiary.
As of this year, the law has been favourably changed to make the tax treatment equal for a surviving spouse or partner, whether they were named as successor or beneficiary, as long as action is taken by Dec. 31 of the year following death.
But what if you didn’t name your spouse or partner as successor holder or beneficiary?
They may still be able to make an exempt contribution to their own TFSA to the extent they receive the value of the TFSA proceeds as a consequence of your death. This could be the case where the TFSA is left to the estate — because no successor or beneficiary was named — and your spouse or partner receives the residue of the estate under your will or on intestacy if you didn’t make a will.
If you name someone other than a spouse or partner as your TFSA beneficiary or don’t name anyone and the TFSA proceeds are paid to your estate, any income earned in the TFSA after the date the holder died will simply be taxable to the beneficiary or the estate as ordinary income.
In the recent CRA technical interpretation, the taxpayer indicated he became the successor holder of his late wife’s TFSA upon her death in 2025. During 2024, his late wife had withdrawn an amount from her TFSA with the intention of recontributing that amount to her TFSA in 2025. Unfortunately, his wife passed away before she was able to make such a recontribution.
The taxpayer wanted to know whether he was now able to recontribute to the TFSA the amount that his late wife withdrew from her TFSA in 2024 and whether her unused TFSA contribution room for 2025 could now be used by him to contribute to the TFSA following her death.
The CRA said that upon the death of an individual who was the holder of a TFSA, assuming the surviving spouse was named as the successor, the surviving spouse then becomes the holder of the TFSA and thus acquires all of the rights as holder of the TFSA that the original holder had.
Those rights include the right to contribute to the TFSA, but the limit, which dictates how much may be contributed by a holder of a TFSA without attracting overcontribution penalty tax, is determined under the provisions of the Income Tax Act, rather than pursuant to the terms of the TFSA itself.
As a result, the holder of a TFSA is therefore unable to contribute an amount to their TFSA in a calendar year beyond their own personal unused TFSA room.
The CRA pointed out that unused TFSA contribution room is specific to each individual, is determined “on an individual-by-individual basis” and is not transferrable from one individual to another, such as a surviving spouse.
Recontributing amounts withdrawn from a TFSA in a subsequent year only applies to an individual’s own TFSA contribution room, not to the TFSA itself. As a result, the CRA confirmed that the amount of the TFSA withdrawal that the taxpayer’s wife received in 2024 is not included in the calculation of the unused TFSA contribution room for 2025 of the surviving husband.
Similarly, the unused TFSA contribution room of the taxpayer’s wife cannot be used by the surviving husband to contribute to a TFSA following her death since unused TFSA contribution room is specific to each individual.
The CRA also said there are no provisions in the act that allow for the transfer of an individual’s unused TFSA contribution room to another person and the unused TFSA contribution room of an individual ceases to exist upon their death.
Jamie Golombek, FCPA, FCA, CFP, CLU, TEP, is the managing director, Tax & Estate Planning, with CIBC Private Wealth in Toronto. Jamie.Golombek@cibc.com
