Examples – Successor holder
Ginette and her husband Paul lived in a province that recognizes a TFSA beneficiary designation. Ginette was the holder of a TFSA and designated Paul as the successor holder. Ginette died on February 15, 2019. 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, 2019. By that time, an additional $200 of income had been earned. Since Paul met all the conditions, he became the successor holder of Ginette'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 Paul. The $200 of income earned after the date of death (and any subsequent income earned) is also not taxable to Paul. 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 Ginette was a resident, at the time of her death, in a province that recognizes TFSA beneficiary designations.
Miriam and Pauline were a married couple. Each had available TFSA contribution room of $6,000 at the beginning of 2019. Miriam initially contributed $6,000 to her TFSA, and Pauline contributed $1,500 to hers. On June 12, 2019, Miriam contributed an additional $2,000 to her TFSA, bringing her total contributions for 2019 to $8,000.
As Miriam only had contribution room of $6,000 for 2019, she had an excess TFSA amount of $2,000. Miriam passed away on September 18, 2019, and the value of her TFSA on that date was $8,000. Miriam had named Pauline as the successor holder of her TFSA in the event of her death. As Pauline meets all the conditions to be considered a successor holder, she becomes the holder of the TFSA as of September 18, 2019.
Since an excess TFSA amount remained in Miriam’s TFSA at the time of her death, Pauline is deemed to have made, as of October 1, 2019, a $2,000 contribution to her TFSA (which is the excess amount in Miriam’s TFSA). As Pauline had only previously contributed $1,500 to her own TFSA, she still had unused TFSA contribution room for 2019 of $4,500. 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 Pauline based on this deemed contribution. Her unused contribution room for the rest of 2019 is $2,500. However, the legal representative of Miriam’s estate must file Form RC243, Tax-Free Savings Account (TFSA) Return, and Form RC243-SCH-A, Schedule A – Excess TFSA Amounts, for the 2019 tax year reporting the excess in Miriam's TFSA for the period from June up to and including September 2019.
From the situation above, if Pauline had initially contributed $6,000 to her own TFSA on May 10, 2019, instead of the $1,500 previously noted, the $2,000 deemed contribution on October 1, 2019, would have resulted in total contributions to her TFSA in 2019 of $8,000.
As Pauline’s TFSA contribution room for 2019 was $6,000, as a result of the deemed contribution, she would be considered to have an excess TFSA amount of $2,000 ($8,000 – $6,000). In this situation, Pauline 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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