General rule – If an HBP participant
dies, the legal representative has to include the participant’s HBP balance
in the participant’s income for the year of death. The amount to be included
in a deceased participant’s income for the year of death is equal to the
participant’s HBP balance before death less any RRSP/PRPP contributions (made
before the participant died) designated as an HBP repayment for the year
of death.
HBP election – If, at the time
of death, the participant had a spouse or common-law partner who is a
resident of Canada, that individual can jointly elect with the deceased
participant’s legal representative, to make the repayments under the HBP
and to not have the income inclusion rule apply for the deceased participant.
The participant’s HBP balance at the time of death less any RRSP/PRPP contributions
designated as an HBP repayment for the year of death is treated as if
the surviving spouse or common-law partner withdrew it, and it has to
be repaid to that individual’s RRSP/PRPP.
Note
If, in the year of death, but before the participant dies, the surviving spouse or common-law partner became a participant, that individual may still withdraw amounts under the HBP (up to $35,000) from his or her RRSPs in the year. There are no adverse tax consequences to the surviving spouse or common-law partner if, as a result of electing to treat the deceased participant’s HBP balance as his or her own, the new HBP balance exceeds $35,000.
If at the time of death the participant’s surviving spouse or common-law partner is also a participant and the election described above is made, the surviving spouse’s or common-law partner’s revised HBP balance has to be repaid over the remaining number of years in his or her repayment period.
However, if the surviving spouse or common-law partner was not a participant, the deceased participant’s HBP balance has to be repaid over the same number of years remaining in the participation period of the deceased.
To make a joint election, the surviving spouse or common-law partner and the deceased participant’s legal representative should attach a signed letter to the final return of the deceased. The letter should state that an election is being made to have the surviving spouse or common-law partner continue making repayments under the HBP, and to not have the income inclusion rule apply for the deceased.
Generally, if the surviving spouse or common-law partner was not participating in the HBP, but elects to continue making the repayments of the deceased individual, the surviving spouse or common-law partner would be considered a participant and cannot make any withdrawals under the HBP until the HBP balance is completely repaid and all the other applicable HBP conditions are met.
Note: If the deceased had not made an HBP repayment for the year of death,
and the election is made, the annual repayment for that year for the deceased
would not be required. The year following the death, Taxprep will roll
forward the HBP balance of the deceased participant in the return of the
surviving spouse.