Larissa is a 65-year-old retired marketing executive. She is single and has no dependents. Larissa accepted a generous retirement package from her…

Upon the death of an annuitant, the entire fair market value (FMV) of their Registered Retirement Savings Plan (RRSP) is included as income on their final tax return. This amount is taxed at the deceased's marginal tax rate. While rollovers can defer this tax, they are only available to a surviving spouse/common-law partner or a financially dependent child/grandchild. Since Larissa is single with no dependents, her sister Natalya does not qualify for a rollover, and the full value of the RRSP becomes taxable income for Larissa's estate. This treatment makes the RRSP "fully taxable" as income, unlike other assets.

A. The condo: The capital gain on a principal residence is generally eliminated by the Principal Residence Exemption (PRE), making it non-taxable upon deemed disposition at death.
B. The cottage: The cottage is subject to a deemed disposition at death, but only 50% of the capital gain (the taxable capital gain) is included in income.
C. The TFSA: The value of the TFSA at the date of death is paid to the beneficiary tax-free and is not included in the deceased's final income tax return.

1. IFSE Institute, Life License Qualification Program (LLQP) – Taxation Module, Chapter 5: Taxation at Death, Section 5.2.2 "Registered Plans". This section details that the full market value of an RRSP is included in the deceased's income in the year of death unless a tax-deferred rollover to a qualifying survivor is available.

2. Canada Revenue Agency, Guide T4040, RRSPs and Other Registered Plans for Retirement, Chapter 6: "Death of an RRSP annuitant". The guide states, "Generally, the FMV of the property held in the RRSP at the time of death is included in the income of the deceased annuitant for the year of death."

3. Canada Revenue Agency, Income Tax Folio S1-F3-C2, Principal Residence, Paragraph 2.1. This folio explains the rules for the Principal Residence Exemption, which allows a taxpayer to reduce or eliminate the capital gain on the disposition of their principal residence.

4. Canada Revenue Agency, Guide RC4466, Tax-Free Savings Account (TFSA), Guide for Individuals, Section: "Death of a TFSA holder". This guide clarifies that "The deceased holder is not taxed on the amounts held in the TFSA at the time of death."