Your RRIF Goes to One Child, the Tax Bill Goes to the Other Two
An Ontario RRIF worth $500,000 at the date of death, left to one named child, adds $238,605.83 of tax to the deceased’s final return. The fund itself goes straight to the person named on it. The tax it generates stays behind with the estate, and in an estate holding $300,000 of everything else, it takes most of what the other two children were left.
What the statute actually deems to happen
Section 146.3(6) of the Income Tax Act provides: “Where the last annuitant under a registered retirement income fund dies, that annuitant shall be deemed to have received, immediately before death, an amount out of or under a registered retirement income fund equal to the fair market value of the property of the fund at the time of the death.” Nobody actually receives that money; the Act deems it received, pulling the fund’s full value into the deceased’s income for the year of death, on top of whatever else they earned. Section 146(8.8) does the identical job for an RRSP where a person other than a spouse becomes entitled, minus any portion payable to a spouse or common-law partner. The full Justice Laws text of section 146.3 sets out both subsections.
Section 146.3(5) excludes from the beneficiary’s own income “the portion thereof that can reasonably be regarded as (a) part of the amount included in computing the income of another taxpayer by virtue of subsections 146.3(6) and 146.3(6.2)”. In practice, the beneficiary is taxed only on what the fund earns after death, not on the date-of-death value. CRA’s Guide RC4177 confirms this administratively: “A beneficiary will not have to pay tax on any amount paid out of the RRSP if it can reasonably be regarded as having been included in the deceased annuitant’s income.” The slip follows the same logic: CRA Guide RC4177 says “the amount is reported in box 34 of a T4RSP slip issued in the name of the annuitant for the year of death”. The paperwork goes to the person who died, not to the person who got the money.
The worked example, and where the money lands
Take an Ontario resident who dies in 2026 with $40,000 of other income for the year: tax on that alone is $4,660.78. Add the $500,000 RRIF under 146.3(6) and taxable income on the final return becomes $540,000.00, with tax of $243,266.60, meaning the RRIF caused $238,605.83 of that bill: 47.72% of the fund’s value, against Ontario’s top combined marginal rate of 53.53%.
The estate also holds $300,000 outside the RRIF, meant to split evenly between two other children. The daughter named on the RRIF receives $500,000.00 outside the estate, untouched by the will. The estate’s $300,000.00 residue pays the $238,605.83 final-return tax bill, leaving $61,394.17 for the two children who were not named: $30,697.09 each, versus the $266,666.67 an equal one-third split of the full $800,000 estate would have given each child.
The rate is not flat across the fund. Each slice sits on top of the one below it, so the last dollars of the fund are taxed at the top rate while the first are not.
| Slice of the fund | Effective tax rate on that slice |
|---|---|
| $0 to $100,000 | 31.87% |
| $100,000 to $200,000 | 46.88% |
| $200,000 to $300,000 | 52.79% |
| $300,000 to $400,000 | 53.53% |
| $400,000 to $500,000 | 53.53% |
The size of the fund at death is partly a function of the minimum forced withdrawals along the way; our RRIF minimum withdrawal calculator works through what that minimum looks like at different ages and balances.
Who the Act makes liable, and the 160.2 mechanic
The estate pays the final-return tax first. Section 160.2(2) reaches the named beneficiary if the estate cannot: where an amount is received out of a RRIF “by a taxpayer other than an annuitant”, that taxpayer “and the annuitant are jointly and severally, or solidarily, liable to pay a part of the annuitant’s tax under this Part for the year of the annuitant’s death…” in the proportion the amount they received bears to the total included under 146.3(6). Section 160.2(1) sets out the identical rule for an RRSP, keyed to 146(8.8); section 160.2(3) lets CRA “assess a taxpayer in respect of any amount payable because of this section” per the Justice Laws page for section 160.2.
The mechanic that decides whether this touches the beneficiary at all is in 160.2(4)(b): a payment by the annuitant “on account of the annuitant’s liability discharges the taxpayer’s liability only to the extent that the payment operates to reduce the annuitant’s liability to an amount less than the amount in respect of which the taxpayer was … made jointly and severally, or solidarily, liable.” Read plainly: if the estate pays the bill in full, the beneficiary owes nothing under 160.2; the beneficiary is reached only for what the estate leaves unpaid.
In this example the $300,000 residue covers the bill, so 160.2 exposure is $0.00; a $200,000.00 residue would leave a $38,605.83 shortfall, and a $100,000.00 residue a $138,605.83 shortfall. Split among several beneficiaries, 160.2(2) apportions by share received: 100% of the amount included means liability for $238,605.83, 50% means $119,302.91, and 25% means $59,651.46. RC4177 does not mention section 160.2 anywhere; it is a Justice Laws provision CRA’s own guide does not walk through.
What a spouse named as successor annuitant changes
The mechanism above depends on the last annuitant having died. Section 146.3(1)’s definition of “annuitant”, paragraph (b), makes a spouse or common-law partner the annuitant in their own right after the first individual’s death, where the carrier’s undertaking to pay them was made by election of the first individual or with the legal representative’s consent. That spouse is the successor annuitant: the fund simply continues in the survivor’s name, and 146.3(6) never fires, because the last annuitant has not died.
Run the same $500,000 RRIF through that route: the amount included on the final return is $0.00, tax on the final return stays at $4,660.78, a difference of $238,605.83 against the daughter case. A separate “designated benefit” route exists for an amount paid to the legal representative and jointly designated in prescribed form, deemed under 146.3(6.1) to be received by the individual when the legal representative receives it; the RRSP equivalent uses Form T2019 and applies only to a qualifying survivor. CRA also sets a deadline on the RRSP side: all RRSP property being transferred to a spouse must move “by December 31 of the year following the year of death.”
What a will cannot fix about a beneficiary designation
In the common law provinces a beneficiary designation on a RRIF or RRSP overrides the will. The plan pays the named person directly, outside the estate, regardless of what the will says about everything else. The residue clause only governs what is left after the named beneficiary has been paid and the estate has paid the tax the plan generated. A will saying “split my estate equally among my three children” cannot pull the RRIF back into that split once it has already gone to the one child named on the plan; it can only divide what is left.
That is why the designation on the plan and the residue clause have to be read together, not drafted separately and left to interact by accident. Naming one child on the RRIF without adjusting the will’s shares does not produce the equal outcome three children might assume. Our RRSP guide covers the RRSP side of this mechanism in more depth, including the rollover deadline, Form T2019 and the post-death capital loss claim; the fund’s fair market value at death also interacts with the OAS recovery tax and the RRIF minimum in ways this piece has not computed.
The method note behind every dollar figure above: the numbers are federal plus Ontario tax using the basic personal amounts only, computed from CRA’s 2026 brackets and the T4032ON January 2026 surtax thresholds. They exclude the Ontario Health Premium, CPP and EI, and the OAS recovery tax, which an inclusion of this size would also trigger in full.
Disclaimer: The content on bestcanadianstocks.ca is for informational and entertainment purposes only and does not constitute financial advice. Past performance is not indicative of future results. Always consult a qualified financial advisor before making investment decisions. Income Tax Act sections 146, 146.3, 160.2 and 70, from Justice Laws, fetched September 24, 2026. CRA Guide RC4177, Death of an RRSP Annuitant or a PRPP Member, quoted verbatim from the CRA HTML guide retrieved September 24, 2026. Federal and Ontario 2026 brackets from CRA “Current year tax rates and income brackets (2026)”; Ontario surtax thresholds and basic personal amounts from CRA Guide T4032ON, January 2026 edition. All tax arithmetic is ours, from a rate engine that validates against CRA’s published Ontario top combined marginal rate of 53.53% and refuses to run if the check fails. The model uses the federal and Ontario basic personal amounts only and excludes the Ontario Health Premium, CPP and EI, and the OAS recovery tax, as stated in the article.
