Canadians continue to face consequences from pandemic support programs. A recent court case demonstrates how complex the rules become when someone dies. A Tax Court decision about a young taxpayer’s estate reveals an unexpected problem for many families. The government can take back benefits like the Canada Recovery Benefit even after someone has died. The same thing can happen with Old Age Security in the year of death. This guide covers the court ruling & explains why clawbacks occur. It also looks at how RRSP values affect the situation and what Canadians can do to prevent problems. The case involved a taxpayer who received pandemic benefits but died before filing their final tax return. The estate had to deal with benefit repayments based on the deceased person’s total income for that year. When someone dies their RRSP is considered fully withdrawn and added to their final tax return as income. This can push their total income high enough to trigger clawbacks of benefits they received earlier in the year. The court ruled that the estate must repay the benefits even though the person who received them had passed away. This decision surprised many people who assumed death would cancel such obligations.
Why the CRA Clawed Back a Deceased Taxpayer COVID Benefit
In late 2025 a Tax Court ruling confirmed that the estate of a young Canadian who died in December 2021 must repay the $18,600 in CRB benefits he had received earlier that year. The issue was not fraud or ineligibility at the time of payment. Instead it came down to how income is calculated for the CRB repayment test. Under the Canada Recovery Benefits Act CRB recipients had to repay some or all of their benefit if their net income excluding the CRB itself exceeded $38,000 for the year. The repayment rate was 50 cents per dollar above the threshold & was capped at the total CRB received. When the taxpayer died he held two RRSPs worth a combined $74353. Because he had no spouse to receive the RRSP through a rollover the full fair market value was added to his taxable income for 2021. This pushed his income high enough that all CRB benefits became repayable under the law. The estate argued that RRSP value at death is not income earned for repayment purposes. The judge disagreed and ruled that income earned refers to income as calculated under the Income Tax Act which includes RRSP fair market value at death. The result was a full $18,600 repayment.
Why This Case Has Canadians Worried
The ruling followed the law correctly but it seemed unfair. The taxpayer qualified for the CRB when he first applied for it. The problem only happened because his RRSP was valued in 2021 after he died which automatically increased his income above the allowed limit.
– This case shows a bigger problem with how tax rules work in the year someone dies.
– When an RRSP or RRIF gets added to taxable income all at once it can cause unexpected benefit clawbacks.
– If this same taxpayer had survived until January 2022 his RRSP value would have counted toward the following tax year instead.
– In that situation the estate would have been able to keep the benefit payment.
How the Same Issue Can Affect OAS Recipients
The same issue can occur with Old Age Security. When a person dies and their RRSP or RRIF gets added to their income for that year, they might suddenly exceed the OAS clawback threshold without anyone expecting it. The 2025 OAS clawback thresholds show that the clawback starts when net income goes above 93454 dollars. OAS gets fully clawed back at 152,062 dollars. For seniors who are over 75 years old, OAS is eliminated at 157,923 dollars. When a large RRSP gets added to income during the year of death the deceased person may be viewed as having earned enough money to lose some or all of their OAS retroactively. This situation leaves families feeling confused when the estate gets a bill for OAS repayment several months after the death.
How RRSP and RRIF Rules Cause Year-of-Death Income Spikes
When someone dies without an eligible rollover beneficiary the entire fair market value of their registered plans counts as income.
– This amount can be substantial enough to trigger COVID benefit repayments and OAS clawbacks.
– It can also push the estate into a much higher tax bracket and affect provincial credits & benefits.
– Many Canadians do not realize how these tax rules work together until they settle a family member’s estate.
Can Canadians Avoid These Clawbacks
No strategy works perfectly but planning ahead can help you avoid surprise taxes or losing benefits you already received. Plan RRSP Withdrawals Before Age 72 Some advisors suggest taking out small amounts in the years before RRIF minimums start. This makes the RRSP smaller when you die. The downside is you pay tax sooner and lose some tax-sheltered growth. Consider Spousal Rollovers Registered plans can transfer to a spouse or common-law partner without immediate tax. This prevents a large income spike in the year of death. Review Beneficiary Designations If a financially dependent child or grandchild qualifies for special rollover treatment the estate can skip immediate taxation. Understand How Benefit Repayment Tests Work Many Canadians do not realize that CRB and CERB and OAS and even GIS have repayment or clawback rules connected to net income. Families should understand that a single event in the year of death can affect benefit eligibility going backward in time.
What This Means for Canadians Today
– This case shows that tax rules keep working even during hard times. Big RRSP balances can accidentally cause clawbacks even when the taxpayer followed all the rules correctly.
– Lawyers and financial experts still argue about whether clawbacks after death make sense as policy. Right now the law remains unchanged and Canadians need to plan with this reality in mind.
