Generally, when an annuitant of a Registered Retirement Savings Plan (“RRSP”) or a Registered Retirement Income Fund (“RRIF”) dies, the Canada Revenue Agency (“CRA”)  will consider that the annuitant received, immediately before death, an amount equal to the fair market value (“FMV”) of the property held in the RRSP or RRIF at the time of death. This amount and all other amounts the annuitant received from the RRSP or RRIF in that same year have to be reported on the annuitant’s income tax return for the year of death.

What happens if there a post-death decline in value of the RRSP or RRIF when the final distribution is made?

If the final distribution from the RRSP or RRIF is made in the year of death, the decline in value can be claimed as a deduction on the terminal return. If the distribution is made in the year after year of death, the annuitant’s legal representative can file a T1 Adjustment for the deduction.

In both cases, the administrator of the plan must fill out the CRA approved form to document the decline in value and the annuitant’s legal representative files a copy of the form with the terminal return (if in the year of death) or with the T1 adjustment (if in the year after year of death).

If the final payment from the RRSP or RRIF was made after the end of the year following the year of death, some or all of the post-death decline in value may not be allowed to be deducted. However, the CRA has the authority to waive this condition depending on the circumstances.

Similar rules apply to pooled registered pension plans.

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