Mr. Garcia, a 65-year-old from Manitoba, recently passed away. His Will designates his wife, Maria, as the sole beneficiary of his RRSP, valued at $800,000. He also had an additional $200,000 in a GIC that was jointly owned with Maria. What is the tax implication regarding the RRSP proceeds due to his wife Maria?

Question: Mr. Garcia, a 65-year-old from Manitoba, recently passed away. His Will designates his wife, Maria, as the sole beneficiary of his RRSP, valued at $800,000. He also had an additional $200,000 in a GIC that was jointly owned with Maria. What is the tax implication regarding the RRSP proceeds due to his wife Maria?

Answer options:

• The RRSP will be fully included in Mr. Garcia's terminal tax return, and Maria will receive the after-tax amount. ✅ The RRSP can be rolled over to Maria's own RRSP or RRIF on a tax-deferred basis, avoiding immediate tax.
• Maria will receive the RRSP proceeds as a tax-free inheritance, similar to life insurance proceeds.
• Half of the RRSP will be taxed in Mr. Garcia's hands, and the other half will be taxed in Maria's hands.

Correct answer: The RRSP can be rolled over to Maria's own RRSP or RRIF on a tax-deferred basis, avoiding immediate tax.

Explanation: Upon the death of an RRSP holder, if the spouse is designated as the beneficiary, the funds can generally be transferred to the surviving spouse's RRSP or RRIF on a tax-deferred basis, provided certain conditions are met, allowing deferral of income tax.