Examples – Successor holder

Example 1

Joan and her husband George lived in a province that recognizes a TFSA beneficiary designation. Joan was the holder of a TFSA and designated George as the successor holder. Joan died on February 15, 2017. The value of her TFSA on that date was $10,000. There was no excess TFSA amount in her account. Her estate was finally settled on September 1, 2017. By that time, an additional $200 of income had been earned. Since George meets all the conditions, he became the successor holder of Joan's TFSA as of the date of her death.

The fair market value (FMV) of $10,000 as of the date of death is not taxable to George. The $200 of income earned after the date of death (and any subsequent income earned) is also not taxable to George. No T4A slip would be issued and Form RC240, Designation of an Exempt Contribution Tax-Free Savings Account (TFSA), would not be necessary in this situation.

This is because Joan was a resident, at the time of her death, in a province that recognizes TFSA beneficiary designations.

Example 2

 

Mary and Ellen were a married couple. Each had available TFSA contribution room of $5,500 at the beginning of 2017. Mary initially contributed $5,500 to her TFSA, and Ellen contributed $1,500 to hers. On June 12, 2017, Mary contributed an additional $2,000 to her TFSA, bringing her total contributions for 2017 to $7,500.

As Mary only had contribution room of $5,500 for 2017, she had an excess TFSA amount of $2,000. Mary passed away on September 18, 2017, and the value of her TFSA on that date was $7,500. Mary had named Ellen as the successor holder of her TFSA in the event of her death. As Ellen meets all the conditions to be considered a successor holder, she becomes the holder of the TFSA as of September 18, 2017.

Since an excess TFSA amount remained in Mary’s TFSA at the time of her death, Ellen is deemed to have made, as of October 1, 2017, a $2,000 contribution to her TFSA (which is the excess amount in Mary’s TFSA). As Ellen had only previously contributed $1,500 to her own TFSA, she still
had unused TFSA contribution room for 2017 of $4,000. As a result, the $2,000 deemed contribution does not create an excess TFSA amount in her account. Therefore, there are no tax consequences to Ellen based on this deemed contribution. Her unused contribution room for the rest of
2017 is $2,000. However, the legal representative of Mary’s estate must file Form RC243, Tax-Free Savings Account (TFSA) Return, and Form RC243-SCH-A, Schedule A – Excess TFSA Amounts, for the 2017 tax year reporting the excess in Mary's TFSA for the period from June up to and including September 2017.

Example 3

From the situation above, if Ellen had initially contributed $5,500 to her own TFSA on May 10, 2017, instead of the $1,500 previously noted, the $2,000 deemed contribution on October 1, 2017, would have resulted in total contributions to her TFSA in 2017 of $7,500. 

As Ellen’s TFSA contribution room for 2017 was $5,500, as a result of the deemed contribution, she would be considered to have an excess TFSA amount of $2,000 ($7,500 – $5,500). In this situation, Ellen would be subject to a tax of 1% per month on this excess TFSA amount for as long as it remained in her account.

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