What you need to know about inheriting or transferring a foreign pension

An IRA can be transferred, tax-free, to a Canadian RRSP, but it’s complicated and not always worthwhile.Karen Bleier/AFP files

The biggest tax bill upon death for many Canadians arises from the mandatory inclusion of any remaining RRSP or RRIF funds as income on their final tax return.

The tax law states that, absent a qualifying rollover to a surviving spouse or partner (or, in very limited situations, a dependent child), the fair market value of your RRSP or RRIF is included in income in your terminal year. With top personal marginal tax rates exceeding 50 per cent in more than half of Canada, your heirs could see a large chunk of your RRSP or RRIF lost to the taxman prior to receiving their inheritance.

But if you inherit your relative’s foreign pension plan, must that also be included in your income? That issue arose in a tax case decided earlier in May.

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