Do RRIF Beneficiaries Pay Tax?
Essentially, a beneficiary may be liable for tax owing if there is not enough money left in the estate. This could apply if an RRSP or RRIF is the primary or sole asset of an estate. However, it is important to consider that a beneficiary of an RRSP or RRIF is different from the beneficiary of the rest of the estate in determining who gets what from an estate.
Does a beneficiary pay taxes? Can this tax be deferred?
If a beneficiary of an RRSP or RRIF is the deceased’s spouse or common-law partner, or the beneficiary of the deceased’s estate, it may be possible to defer tax , Gay. This tax deferral may apply if the proceeds are transferred to their own RRSP or RRIF by December 31 of the year following the death of the account holder.
In this case, a T4RSP or T4RIF slip will instead be issued to the beneficiary spouse who would claim the income and could also claim an offsetting deduction on their income tax return to avoid tax.
Future withdrawals would be taxable to the beneficiary spouse over time. It does not matter whether the transferring or transferring account is an RRSP or a RRIF. It is also irrelevant that the beneficiary spouse does not have an RRSP or RRIF, as they can open one to receive the transfer.
Beyond a beneficiary spouse, a financially dependent minor child or grandchild, or a mentally or physically disabled financially dependent child or grandchild may also be eligible for a tax-deferred transfer.
The deadline to convert an RRSP to a RRIF is approaching
In your case, Gay, if you’ve turned 71 this year, you’re right that December 31st is an important date. You must convert your RRSP to a RRIF before this deadline, or buy an annuity from a life insurance company, because your RRSP can no longer exist afterwards.
Either way, if you are a beneficiary of a RRIF and the spouse of the deceased person, you can transfer the amount to your RRSP or your RRIF, so that the time of the conversion from your own account does not will not matter for the purposes of the transfer.
If you are not the spouse of the deceased and you are not their financially or physically or mentally or physically dependent child or grandchild, there is no tax relief. Again, tax would be paid by the deceased’s executors on their estate and the income and tax would not be on your tax return.