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Canada Estate Planning for Tax Efficiency Rough Guide

This is a general guide. I came up with this out of some general rules from reading and researching and they are this.


  1. There is no inheritance or estate tax upon death
  2. Upon death, your estate files a ‘final tax return’ and assumes everything is sold
  3. TFSA, Cash, Life Insurance Benefits and Principal Residence = NO ESTATE TAXES
  4. RRSP, Unregistered investments, Investment properties are deemed to be sold or received as income the date of death and taxed accordingly
  5. Name your spouse a SUCCESSOR on your TFSA not a BENEFICIARY (doesn’t apply in Québec as there is no distinction for them, and you need to be a married spouse for this to be automatic)
  6. Name your spouse as a SUCCESSOR ANNUITANT on your RRSP after it is converted to an RRIF not a BENEFICIARY (again, not in Québec). A successor annuitant can only be named on an RRIF not an RRSP.
  7. You can leave your principal residence to your beneficiary TAX-FREE only if your beneficiary has no principal residence of their own (e.g. they’re renters)

For the last two, it is important you distinguish your spouse to be a SUCCESSOR (ANNUITANT) for these accounts and not leave them as a BENEFICIARY so that they simply take over the accounts and don’t go through the hassle of having to go through the Rollover period (date of death until the date of transfer) and deal with the tax fallout during that period (e.g. if your TFSA gains, they will then be taxed on the gain).


1. Drain your RRSPs ASAP

Start withdrawing at 55.

When you die, and your estate files that final tax return, it is deemed ‘disposed of at date of death’, as if you sold it all and it became a big income on your tax return.

RRSPs are also not straightforward. People (including spouses) can only be beneficiaries.

Once you convert the RRSP to an RRIF, if you don’t choose your spouse be a SUCCESSOR ANNUITANT (again, not applicable in Québec as it is all automatic IF you are married), then you have to go through a lot of rigamarole.

I don’t know enough to talk about spousal transfers, so I will leave that topic for another day as my brain is already very full right now, processing all of this information.

For now, the main  estate planning rule is: Aim to drain your RRSPs ASAP above and before all other options & once your RRSP is an RRIF, make your spouse a successor annuitant.

2. Do “in-kind” transfers from your RRSP to your TFSA

When you’re draining your RRSPs, think about draining them into your TFSA. This is called an ‘in-kind’ transfer, and you will pay taxes on that $6000 you are contributing to the TFSA that year, as RRSP/RRIF income on your taxes, BUT you are now at least sheltering your money in a way that is NOT TAXABLE at the time of death.

You could be wondering: But why don’t I just transfer cash into my TFSA?

Well RRSP –> TFSA means you now make that $6000 tax-sheltered at time of death.

Cash –> TFSA doesn’t do anything extra from an estate tax planning perspective because both of these accounts are not taxable anyway, at time of death.

So why not take what is taxable at time of death (RRSP) and convert it into something that isn’t, no matter what?

3. Aim for TFSA and Cash at the end

Drain every account including your unregistered investments before you touch your TFSA or Cash.

Those two are not taxed at the end but you also can’t plan when you will die, so you can’t figure out how to smooth out that income and so on until your actual death date…. so….. 🙂

4. Margin/Unregistered investments are subject to capital gains at 25%

This means that it is taxed way more favourably than RRSP/RRIF (the income is considered an ‘income’ on taxes and isn’t as tax-favourable as dividends or capital gains, and is taxed quite highly up to 55% in some cases depending on the amount).

Margin/Unregistered investments would be considered ‘sold’ in the year of your death, but your estate would only pay 25% on the capital gains of it.

How capital gains tax works

So if you have $50K in your margin account, and $25K of that was capital gains, you will be taxed 25% on the $25K.

5. Investment properties are taxed as if they were sold

Have a ton of investment properties? They’re all going to be ‘sold’ at the time of your death, and your estate has to pay the final taxes on the capital gains.

The only exception is your principal residence – no taxes on that, as no ‘sale’ is considered.

6. Don’t buy life insurance benefit plans just to avoid taxes

What you’re paying into these things, are not worth the hassle.

Just because they’re not taxable, doesn’t make them a good deal. Just save that money in an unregistered account and pay the 25% capital gains tax if need be, as it is a smarter idea than a life insurance benefit.

7. Gifts are not taxed either but if it’s cash, then keep it

Drain your estate beforehand. Gift investments to your child or grandchild to drain your estate so your tax bill isn’t so fat at the end.

However, the year you transfer investments, you will be taxed so do it in a year where you have capital losses in the same year so they can offset any capital gains you gift.

Or gift over time, small amounts to keep the taxes low when you have a low income year.

You don’t need to gift cash, it isn’t taxable at the end of your years. So… keep that money for you.

That’s about it.

The rest is just personal preference.

I personally will be looking at dividends as the bulk of my estate because I enjoy not touching the capital and getting income to live on, and avoiding investment properties because I hate people.

Once Little Bun gets them, it will be a 25% capital gains tax but I’d rather have that than a 55% tax on my RRSPs.

Update: July 2021

Death, taxes and your RRSP / RRIF is an excellent read about the intricacies of the RRSP/RRIF. Basically, it doesn’t change what I said above – make sure your spouse or common-law spouse is an annuitant. The only minor change is if your time of estate taxes hits while your (grand)children are under the age of 18, you could attribute the RRSP/RRIF to them until the age of 18, and spread out the taxation over the years.

So if they’re 15, they have 3 years to have the taxes spread out by slowly draining the RRSP/RRIF. Fully dependent children (disabled for instance), will just have it roll over to them as if they were an annuitant, and they step in and take over as if it is their RRSP.

Suggestions? Ideas? Corrections?

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