This blog post was written by: Melissa Plunkett, Director, Scotiatrust

On Friday, September 26, 2025, when CTV news published their story “Daughter hit with $660,000 tax bill when both parents died in the same year”, I was inundated with texts and DMs from friends and family asking me if this could really happen to a middle-class family.   Did the CRA assess too much tax?  Was an RRSP really all taxable at death?   Here’s a quick synopsis of the news story:  62-year-old mom died in January, leaving her registered plan and other assets to dad.  When mom’s RRSP was directly transferred to dad’s RRSP, its value became $715,000.   Dad, age 63, died in December of the same calendar year.  The article suggests dad’s estate consisted of the RRSP and the family home, which, had been their cottage from 1998 until 2019, when they sold the family home and moved into the cottage permanently, making it their principal residence from 2019 onward.

I read the story and did the rough math – a $715,000 RRSP at death meant about 350K of the tax bill came from the RRSP.  That meant the remainder of the tax bill, about 310K, attributed to the capital gain on the cottage accrued between 1998 to 2019.  My rough math told me their capital gain on the cottage was about 1.2M.  This meant their estate, with these two assets alone was worth at least 2M, and their tax bill was 660K, so about 33%, hardly what I would think of as excessive.

But as the questions continued to come in all weekend, and I explained again and again that “you deduct your RRSP contributions when you make them, and take it back into income when you withdraw from the plan, so if you die with a balance in there, unless your spouse is the beneficiary, its entirely taxable in your year of death” over and over, the conclusion I came to is this – the general public is not well informed about how taxes work in the year of death.  Furthermore, I concluded this story was only meant to incite frustration rather than take the opportunity to educate and inform the public about taxes at death.

The daughter was quoted as saying she and her brother expected to inherit their parents’ life savings upon their deaths (i.e. the RRSPs) but were left with no other option than to use the RRSP proceeds to pay their dad’s tax bill.  There was no mention of selling the cottage, just that her parent’s life savings was gone.  Furthermore, there was no mention of the step up in adjusted cost base to the cottage she and her brother had acquired.  She went on to say that her objective in telling her story was to advise the public that RRSPs may not be the best solution for everyone to save for retirement, citing her family’s experience as the case study.

So, what else could mom and dad have done?  We don’t know if they had any money in Tax Free Savings Accounts (TFSAs) but the article suggests they didn’t’; that would certainly have been an option during their accumulation years – put less in their RRSPs and more in their TFSAs, but, then they may not have gotten the same tax refunds their RRSP contributions may have brought them year over year.

Mom and dad could have bought life insurance to address the tax liability the cottage would bring on the last of their two deaths; but again, they would have to weigh the pros and cons of using after tax cash for life insurance premiums rather than RRSP contributions with consideration for whether their annual tax refunds would be reduced or lost and what that would mean to their cash flow.

I would suggest, (and this may not be a popular opinion) given the daughter used the RRSP proceeds to pay the tax and not have to sell the cottage, her parents’ planning worked; there was available cash to pay the tax and ensure the cottage could stay in the family.  This is certainly a better outcome than what we more commonly see faced by middle class families – having to sell the cottage to pay the tax on its appreciation in value.  This story tells me there is an opportunity for all of us in our industry to better inform our clients, their families and the Canadian public in general about tax consequences at death so that we can reduce the number of people as surprised and frustrated as the daughter was in this story.