In Bozek v Drongosky, 2026 ONSC 4245 the Ontario Superior Court considered whether tax obligations imposed under the Deceased’s will in relation to her Registered Retirement Savings Plan (“RRSP”) continued to apply after the RRSP was converted into a Registered Retirement Income Fund (“RRIF”) and a new beneficiary designation was executed. The answer turned on the specific language of the will and the terms of the later RRIF designation, which differed significantly from the earlier RRSP arrangement.
Background
The Deceased died on June 27, 2023. She was survived by her husband, the Respondent, to whom she had been married for approximately 28 years, and three adult children from a previous marriage. Two of the children brought the application. The third child subsequently died, and his estate was a respondent in the proceeding.
The Deceased’s 2001 will provided that her children would receive the first $100,000 of her RRSP. Importantly, the will required the children to reimburse the estate for income tax attributable to the RRSP benefit they received. The will also provided the children with a separate $150,000 legacy from the proceeds of sale of the Deceased’s residence and permitted any unpaid RRSP-related tax liability to be deducted from that legacy.
After the Deceased reached age 71, her RRSP matured and was converted into a RRIF in accordance with the Income Tax Act. In 2018, the deceased went on to execute a new RRIF beneficiary designation pursuant to which 90% of the RRIF proceeds were to be divided equally among her three children, with the remaining 10% payable to the Respondent. Unlike the RRSP provisions in the will, however, the new RRIF designation did not require the children to reimburse the estate for any resulting income tax. Following the Deceased’s death, the RRIF proceeds were distributed directly to the designated beneficiaries and did not pass through the estate. However, the value of the RRIF was included in the Deceased’s income in her terminal year, resulting in a substantial tax liability.
Who Was Responsible for the Tax?
Acting as estate trustee, the Respondent took the position that the children should bear the portion of the Deceased’s terminal tax attributable to the RRIF proceeds they received. He therefore sought to deduct those amounts from the separate $150,000 legacy under the will.
The Applicants argued that the tax reimbursement provisions applied only to the RRSP specifically identified in the will. By the time of the Deceased’s death, that RRSP no longer existed because the Deceased had revoked the RRSP beneficiary designation and replaced it with the 2018 RRIF designation.
The Respondent argued that the RRSP and RRIF effectively constituted the same retirement asset and that the Deceased intended her children to bear the tax consequences associated with those funds. The Court rejected that interpretation.
The Court’s Interpretation of the Will
Applying established principles of will interpretation, including the “armchair rule,” the Court considered the language of the will together with the surrounding circumstances to determine the Deceased’s intention. The Court emphasized that the will repeatedly referred specifically to an RRSP. It did not use broader language such as “registered plans” or language extending the tax obligation to replacement or successor plans.
The Court also attached significant weight to the 2018 RRIF designation. The case did not involve a simple automatic conversion of an RRSP into a RRIF without further action by the Deceased. By executing a new RRIF designation with materially different terms, the deceased effectively revoked and replaced the previous designation. The Deceased also did not amend her will to extend the existing RRSP tax provisions to the RRIF. Thus, the Court concluded that it would be inappropriate to import conditions from the revoked RRSP designation into the subsequent RRIF designation.
The Respondent relied on Boulos v. Duca Financial Services Credit Union (Boulos), which considered whether a beneficiary designation survived the conversion of an RRSP into a RRIF. The Court distinguished Boulos because the original beneficiary designation in that case remained in effect. In contrast, the Deceased’s new RRIF designation expressly revoked and replaced the earlier RRSP designation.
The Court also declined to rely on the Respondent’s evidence concerning alleged discussions with the Deceased about her intentions. Much of that evidence was inadmissible as direct evidence of testamentary intention and, in any event, was uncorroborated.
The Court’s Decision
Ultimately, the Court held that the children were not responsible for the income tax arising from the RRIF. The tax reimbursement provisions in the will applied to the RRSP contemplated by the will and did not extend to the subsequently created RRIF governed by the 2018 beneficiary designation.
Accordingly, the Respondent was not entitled to deduct the RRIF-related tax liability from the $150,000 legacy, and the Court ordered that the legacy be paid in full.
The Court also addressed the fact that the legacy had remained unpaid for more than three years. Applying the “rule of convenience,” it held that because the legacy had not been paid within one year of the Deceased’s death, the Applicants were entitled to simple interest at 5% per annum from June 27, 2024 until payment.
