Although the legislation indicates that the funds within a PRPP are to be used for retirement purposes, the Income Tax Act does provide for certain situations where the funds are distributed prior to retirement age, and to someone other than the PRPP member.

Death of a PRPP member

When the member of a PRPP dies, where there is no successor member, the CRA considers that all property held in the PRPP is deemed to have been distributed immediately before the date of death. The fair market value (FMV) of the assets held in the PRPP account less amounts distributed to qualifying survivors is included on the deceased member’s final income tax and benefit return.

A beneficiary will not have to pay tax on any amount paid out of the deceased member’s PRPP account if it can reasonably be regarded as having been included in the deceased member’s income.

In the case of the death of a member who had a spouse or common-law partner, if the deceased member's spouse or common-law partner was named in the agreement with the financial institution, the surviving spouse or common-law partner becomes a surviving member of the plan, taking over ownership and future direction of the PRPP account for the deceased. The surviving member is then entitled to receive a lump-sum payment from the PRPP or can choose to transfer the funds directly, on a tax-deferred basis, into another investment plan such as another PRPP, RRSP, SPP, RRIF or RPP. For more information, refer to PRPP transfers.

For complete detailed information on the death of a PRPP member, refer to Information Sheet RC4178, Death of a RRIF Annuitant, PRPP Member, or ALDA Annuitant.

Financially-dependent child or grandchild

In the case of a PRPP member who has a financially-dependent child or grandchild, if designated, the child or grandchild will (as a qualifying survivor) receive the funds from the deceased's member's PRPP account up to any amount designated. Since payments made out of the PRPP are taxable, the child or grandchild would include the amount received as income on their income tax and benefit return. Same as for RRSPs, the amount received can be used to purchase a qualifying annuity. For more information, refer to Amounts paid from an RRSP or RRIF upon death of an annuitant.

If the financially-dependent child or grandchild has a physical or mental infirmity and is eligible for the disability tax credit (refer to line 31600 – disability amount), the lump-sum amount from the deceased's PRPP can be directly transferred or "rolled over" on a tax-free basis, into a registered disability savings plan for an eligible individual.

Breakdown of the marriage or common-law partnership

A former or current spouse or common-law partner of a PRPP member who is entitled to the funds from the member’s PRPP account as a result of a breakdown of the marriage or common‑law partnership, may directly transfer the lump-sum amount to either:

• another registered plan, such as another PRPP, RRSP, SPP, RRIF or RPP of the individual
• purchase a qualifying annuity

Related links

• PRPP contribution receipt slip
• PRPP transfers
• Amounts paid from an RRSP or RRIF upon the death of an annuitant