CRA finds that a diminution in a TFSA held by the executors reduces the exempt contribution that can be made by the survivor

The definition of “exempt contribution” in s. 207.01(1) contemplates that the “survivor” of an individual can make a contribution on an exempt basis to the survivor’s TFSA “as a consequence of the individual’s death, directly or indirectly out of or under [the deceased’s TFSA] that ceased.”

CRA accepts that this “directly or indirectly” wording contemplates situations where “amounts from a deceased holder's TFSA are first paid to the executor of the estate before being paid by the executor to the survivor.”

What happens if the investments in the TFSA declined between the time of death of Mr. X and the subsequent distribution to the survivor (Ms. Y) - say, from $100,000 to $90,000?

It depends. If the executors immediately transferred the TFSA property to an estate investment account, so that the $10,000 diminution in value occurred in that taxable account, then Ms. Y could make an exempt contribution of $100,000 provided that she received a distribution of at least that amount from the estate (e.g., she received a further $10,000 as a residuary beneficiary). On the other hand, if the executors did not liquidate the TFSA until the time of the distribution to Ms. Y, she could only make a $90,000 exempt contribution even if she received a total of $100,000 as estate beneficiary.

Neal Armstrong. Summary of 11 October 2019 APFF Financial Strategies and Instruments Roundtable, Q.4 under s. 207.01(1) – exempt contribution – (b).