Will the CRA Take More Than Your Family?

Have you ever avoided the “death” conversation? You may be costing your family more than you think. 

Estate planning is often something people assume will take care of itself. There is a general belief that assets will simply pass to the next generation with minimal friction, especially when a will is in place. In reality, the outcome can be very different.

Without proper planning, a significant portion of an estate can be lost to taxes, leaving families with far less than expected. The issue is not poor investing or lack of saving. More often, it comes down to how assets are structured and what happens at death from a tax perspective.

The $660,000 Surprise

A couple passed away in the same year after building a strong financial position over time. They had accumulated a mix of registered investments, non-registered assets, and real estate, including:

• RRSPs worth $700,000
• A non-registered portfolio of $300,000
• A TFSA of $150,000
• A property with significant appreciation
• Pension income in their final year

In the above scenario, the children were left with a tax bill of $660,000. An article was posted about this in September of 2025 and had many people worried about their own estate plans. 

On paper, everything looked well organized. However, what most people don’t fully understand is how each of these assets is taxed upon death.

Taxation of Assets Upon Death

Let’s walk through each asset. In many cases, simply understanding how these are treated is the difference between a well-planned estate and an unexpected tax bill.

This article focuses on what happens after both spouses have passed, as the tax treatment at the first death is often very different.

1. Registered Retirement Savings Plans (RRSP) 

RRSPs are fully taxable as income at death. This means the entire value of the account is added to the final tax return.

Using the example above, a $700,000 RRSP does not pass tax-free to beneficiaries. Instead, it is treated as if an additional $700,000 of income was earned in a single year.

In practical terms, this can result in roughly half of the account being lost to tax, depending on the marginal rate at that time. In this case, that could mean approximately $350,000 going back to the CRA from this account alone.

2. Non-Registered Investments

For non-registered accounts, the CRA assumes that all investments are sold at fair market value upon death, even if they are not actually liquidated. If we take a $300,000 portfolio with a cost base of $200,000, this means there is an unrealized gain of $100,000. At death, that gain is triggered. Only 50% of the gain is taxable, so $50,000 would be added to income in the final year.

While this is more favourable than RRSP taxation, it still contributes to the overall tax burden, especially when combined with other sources of income.

3. Real Estate (Other Than Your Primary Residence)

Properties such as cottages or rental properties are also subject to capital gains tax. At death, these properties are deemed to be sold at their fair market value. The increase in value from the original purchase price is treated as a capital gain, with 50% being taxable. In many cases, these gains have built up over decades. When they are triggered all at once, they can significantly increase the taxable income in the final year.

It is also worth noting that only one property per year can be designated as a principal residence. As a result, secondary properties are often fully exposed to tax.

4. Tax-Free Savings Accounts (TFSA)

TFSAs are one of the few assets that do not create a tax liability at death. The value of the account can pass to a beneficiary tax-free, and no income is reported on the final return.

That said, proper designation still matters. Naming a successor holder allows the account to continue seamlessly, while naming a beneficiary may lead to slightly different outcomes depending on the situation.

Despite often being viewed as a simple savings account, the TFSA is one of the most efficient tools in estate planning.

5. Pension and Other Income

Any income received in the final year, including pension income, is fully taxable.

On its own, this may not be an issue. However, when combined with RRSP withdrawals, capital gains, and other triggered income, it can push the estate into significantly higher tax brackets.

Avoiding Surprises

If you’re not sure what your final tax bill would look like, you’re not alone. Estate planning is complex, and it’s not something most people spend time thinking about. However, as you’ve seen, the impact can be significant.

Every situation is different, and there is no one size fits all approach. The structure of your assets, your goals, and your family dynamics all play a role in the outcome.

The best step you can take is to have a conversation with a professional who can walk you through the details, simplify the concepts, and ensure your plan is aligned with what you want to happen.

Because when it comes to your estate, clarity today can make all the difference later.

This publication is for informational purposes only and shall not be construed to constitute any form of advice. The views expressed are those of the author alone. Opinions expressed are as of the date of this publication and are subject to change without notice and information has been compiled from sources believed to be reliable. This publication has been prepared for general circulation and without regard to the individual financial circumstances and objectives of persons who receive it. You should not act or rely on the information without seeking the advice of the appropriate professional.