Who Pays The Tax If You Inherit An RRSP?

We all know that putting money into an RRSP defers taxes. It is only when the money is withdrawn that the income tax becomes due and payable. However, if a person inherits money that is in an RRSP, who is responsible for the tax, the deceased's estate or the recipient beneficiary?

Section 160.2(1) of the Income Tax Act states that both the recipient and the deceased (the Estate) are jointly and severally liable for the tax. In Ontario, the courts have ruled that the obligation to pay the tax falls to the Estate. It is only if the Estate cannot pay its liabilities that the recipient beneficiary is responsible.

The Lesson: If you inherit money that was taken from a deceased's RRSP, make sure that the Estate has paid the tax before you spend all the money. Failure to do so could result in a unpleasant surprise from Canada Revenue Agency requiring you to pay some or all of the taxes owed.

Banting v Saunders Estate, 2000 CanLII 22834 (ONSC) https://www.canlii.org/en/on/onsc/doc/2000/2000canlii22834/2000canlii22834.pdf

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