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, 2016. 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, 2016. By that time, an additional $200 of income had been earned. As George meets all the conditions, he becomes 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, at the time of her death, Joan was a resident of Canada, living in a province that recognizes TFSA beneficiary designations.

Example 2

Jusitin and Betty were a married couple. Each had available TFSA contribution room of $5,500 at the beginning of 2016. Justin initially contributed $5,500 to his TFSA, and Betty contributed $1,500 to hers. On June 12, 2016, Justin contributed an additional $2,000 to his TFSA, bringing his total contributions for 2016 to $7,500.

As Justin only had contribution room of $5,500 for 2016, he had an excess TFSA amount of $2,000. Justin passed away on September 18, 2016, and the value of his TFSA on that date was $7,500. Justin had named Betty as the successor holder of his TFSA in the event of his death. As Betty meets all the conditions to be considered a successor holder, she becomes the holder of the TFSA as of September 18, 2016.

Since an excess TFSA amount existed in Justin's TFSA at the time of his death, Betty is deemed to have made, as of October 1, 2016, a $2,000 contribution to her TFSA (which is the excess amount in Justin's TFSA). As Betty had only previously contributed $1,500 to her own TFSA, she still had unused TFSA contribution room for 2016 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 Betty based on this deemed contribution. Her unused contribution room for the rest of 2016 is $2,000. However, the legal representative of Justin's estate must file Form RC243, Tax-Free Savings Account (TFSA) Return, and Form RC243-SCH-A, Schedule A – Excess TFSA Amounts, for the 2016 tax year reporting the excess in Justin's TFSA for the period from June up to and including September 2016.

Example 3

From the situation above, if Betty had initially contributed $5,500 to her own TFSA on May 10, 2016, instead of the $1,500 previously noted, the $2,000 deemed contribution on October 1, 2016, would have resulted in total contributions to her TFSA in 2016 of $7,500.

As Betty's TFSA contribution room for 2016 was $5,500, the deemed contribution would result in an excess TFSA amount of $2,000 ($7,500 - $5,500). In this situation, Betty would be subject to a tax of 1% per month on the excess TFSA amount for as long as it remained in her account.