Gold’s Legal Minute*GLM*
By Allan Gold, lawyer Montreal and elder law attorney
Vol. 16, #3 – Feb. 28, 2025
RRSP & TAXE$$$$ØØØØ!
OPENING
In general terms, this case is about responsibility for the debt of a third party. More precisely, this is where a man died leaving unpaid taxes. And Canada Revenue Agency (CRA) went after his widow seeking the collection thereof. Even more particularly, CRA pursued the Registered Retirement Savings Plan (RRSP), transferred after death unto the widow as designated beneficiary. The CRA reasoned that the survivor continues to be the “spouse” of his/her deceased partner. The key question was “Did Marlene Enns cease to be the “spouse” of Peter Enns on his death?” The widow beat back the tax claim. The Federal Court of Appeal ruled that after husband’s death, the widow wasn’t the spouse! As a lawyer Montreal and elder law attorney, I must say, “This CRA proposition was strange but true.” Let’s examine critical aspects on topic. Let’s also dissect this decision.
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“In this world, nothing is certain except death and taxes” – Benjamin Franklin
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STARTING POINT
Let’s start with the basics. Be informed:
- That unless a debt is taken on jointly by a couple, a wife or husband won’t be personally responsible for debts the spouse has incurred. That’s the general rule. However, there are ‘buts.’
- That if one doesn’t pay taxes or pays late, one risks numerous sanctions from CRA or Revenu Québec.
- That a Notice of Assessment will be issued.
- That should the balance not be paid, one will be considered in default and collection will likely begin.
- That it’s more complicated when dealing with a registered retirement savings plan (RRSP). Here’s a quick run-down.
- Such is a “ a retirement savings plan that you establish, that the CRA registers, and to which you or your spouse or common-law partner contribute. Any income you earn in the RRSP is usually exempt as long as the funds remain in the plan. You generally have to pay tax when you receive payments from the plan.” 1
- CRA can seize your RRSP and other savings.
- Should one decide to file a consumer proposal or bankruptcy, RRSPs are generally exempt from seizure except for contributions made in last 12 months.
- A deceased’s RRSP or RRIF can be transferred to the beneficiary named in the RRSP contract or will. Such enables tax-deferred treatment of the funds. This is known as a ‘spousal rollover.’ There are conditions. Inter alia, to retain tax-deferred benefits of the RRSP, it must be rolled over to beneficiary’s RRSP; etc.
- Under this provision, a beneficiary can also be a financially dependent (a) Child or grandchild under 18 years of age; (b) Mentally or physically infirm child or grandchild of any age.
- Such is a “ a retirement savings plan that you establish, that the CRA registers, and to which you or your spouse or common-law partner contribute. Any income you earn in the RRSP is usually exempt as long as the funds remain in the plan. You generally have to pay tax when you receive payments from the plan.” 1
CASE COMMENT
Enns v. The King (2023 TCC 28)
At first instance, an Alberta taxpayer, notably Marlene Enns, challenged an assessment under section 160 of Income Tax Act 2 (the Act), such arising from a deceased husband’s tax debt. She pleaded that the RRSP transfer from deceased husband to widow is not subject to a provision of the Income Tax Act allowing the Crown to collect unpaid tax debts.
Enns v. The King, 2025 FCA 14
The judgment at the level of the Federal Court of Appeal provides the context:
“[1] This is an appeal from the Judgment of the Tax Court of Canada (2023 TCC 28, per Russell J.) that dismissed Marlene Enns’ appeal from the assessment issued under section 160 of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.) (the Act). In general, under this section, if an individual transfers property to their spouse or common-law partner for consideration that is less than the fair market value of the property transferred, the Minister of National Revenue can assess the transferee for all or a portion of the unpaid tax debt of the transferor.”
[2] The Tax Court Judge adopted the decision of Graham J. in Kuchta v. The Queen, 2015 TCC 289, (Kuchta) and found that, for the purposes of paragraph 160(1)(a) of the Act, Marlene Enns did not cease to be the “spouse” of Peter Enns on his death. As a result, the amount that Marlene Enns received as the designated beneficiary of the Registered Retirement Savings Plan (RRSP) of Peter Enns following his death was a transfer of property to his “spouse”. Marlene Enns was therefore liable for the lesser of the amount of the RRSP transferred to her and Peter Enns’ unpaid tax debt.”
The Federal Court of Appeal enunciated the question as follows.
“[6] The issue before the Tax Court in this appeal was whether, for the purposes of paragraph 160(1)(a) of the Act, Marlene Enns continued to be the “spouse” of Peter Enns following his death. The Tax Court Judge noted that there were two prior decisions of the Tax Court that reached opposite conclusions with respect to whether, for the purposes of paragraph 160(1)(a) of the Act, a survivor continues to be the “spouse” of their deceased partner.”
The Federal Court of Appeal noted as follows.
“[7] In Kiperchuk v. The Queen, 2013 TCC 60, Lamarre J. found that a person ceased to be a “spouse” upon death:
[25] Assuming that the transferor is the former husband, he was not related to the appellant by marriage at the time she became entitled to the RRSP. Indeed, the status of marriage is ended by death or by a decree absolute of divorce (Kindl Estate, Re 1982 CarswellOnt 340, [(1983), 39 O.R. (2d) 219] paragraph 10 [Ontario High Court of Justice]).
[26] Therefore, the appellant was not related by marriage to her former husband at the time of the transfer as she was then no longer his spouse (paragraphs 251(1)(a) and 251(2)(a) of the [Act]). Nor was she deemed not to have dealt at arm’s length with her former husband under paragraph 251(1)(b) of the [Act], as the RRSP did not devolve to her through the estate.”
The Federal Court of Appeal noted as follows.
“[51] The Tax Court Judge in Kuchta, at paragraphs 47 and 48, only briefly refers to subsections 72(2) and 148(8.2) of the Act. The references to “spouse or common-law partner” in each of these provisions would also render them meaningless unless a survivor, following the death of the person who was their “spouse” or “common-law partner” immediately before their death, continued to be the “spouse” or “common-law partner” of that person.
[52] However, finding that the ordinary and legal meaning of “spouse” applies to subsection 160(1) of the Act does not render this subsection meaningless. The provision will still apply to transfers between “spouses” during their lifetimes.”
The Federal Court of Appeal concluded as follows.
“[58] The section 160 assessment against Marlene Enns is for the full amount of the RRSP -$102,789.52. If she withdraws this amount as a lump sum to pay the section 160 assessment, she will incur a significant tax liability in the year in which the funds are withdrawn, as the full amount of $102,789.52 will be included in computing her income for the purposes of the Act. Not only will she have to pay the $102,789.52 to satisfy the section 160 assessment, but she will also have to pay the taxes based on adding $102,789.52 to her income. It is far from clear that Parliament would have intended this result following the death of a person’s partner.
[59] The tax consequences, as set out above, when an RRSP is transferred to a designated beneficiary who was the spouse of the deceased immediately before their death, could also explain why the legal and ordinary meaning of “spouse” is the correct interpretation of this word for the purposes of paragraph 160(1)(a) of the Act.
V. Conclusion
[60] As a result, I would find that Marlene Enns was not the “spouse” of Peter Enns when, following his death, his RRSP was transferred to her as the designated beneficiary of his RRSP. [61] I would allow the appeal and set aside the Judgment of the Tax Court. I would allow Marlene Enns’ appeal from the assessment issued under section 160 of the Act and vacate that assessment. I would grant Marlene Enns costs in the Tax Court and in this appeal.
“Wyman W. Webb”J.A.
“I agree.
K. A. Siobhan Monaghan J.A.”
“I agree.
Elizabeth Walker J.A.”
Analysis
This case is about a husband’s tax debt on death. Sounds simple enough. But the RRSP spousal rollover was the complication. The court’s had to apply different provisions of the Income Tax Act (ITA). The finding was driven in part by the change in law re common law spouses.
Here’s the CRA position. First, Section 160 of the ITA applies where there’s a transfer of property by a tax debtor to a ‘non-arm’s length party’ at less than fair market value. Recipient/transferee thereupon may be jointly and severally liable for some, or all, of the transferor’s tax debt. Second, she’s a spouse. Third, she didn’t pay the proper price for this property – indeed, she didn’t pay anything therefore.
Here’s the taxpayer position. First, the RRSP was rolled into a qualifying survivor’s RRSP or RRIF. Second, she’s not the spouse. Third, she’s not liable.
The Tax Court Judge ruled that “Marlene Enns did not cease to be the “spouse” of Peter Enns on his death.” In other words, a widow-widower remains a spouse subsequent to the passing of his/her partner.
In contrast, the Federal Court of Appeal ruled “the legal and ordinary meaning of “spouse” is the correct interpretation of this word for the purposes of paragraph 160(1)(a) of the Act.” Accordingly, the Court held that a survivor ceases to be the spouse of a deceased taxpayer for the purposes of section 160 of the ITA.” In its paragraph 58, the Federal Court did a calculation based upon the CRA position and concluded, “It is far from clear that Parliament would have intended this result following the death of a person’s partner.” As a result, the spousal rollover carried the day.
To be clear, this isn’t “A House Is Not a Home” thing! If I follow the CRA position and extend it, we have a spouse, following the death of his/her partner, possibly remarrying. Of course, there’s a prohibition against being married to two people at the same time. But a widow/widower can marry, right? That’s because the individual is no longer married to someone who has passed on. In the usual and everyday sense, therefore, a survivor does not continue to be the “spouse” of his/her deceased partner.” The court got it right!
In further support, I found a federal web resource page on “Marital Status” which stated “Married means that you have a spouse. This term only applies to a person you are legally married to.” 3 Of course, “you have” is in the present tense. The past tense of “have” is “had”. So married doesn’t mean that you had a spouse! (N.B. On topic, due to jurisdiction, federal law only goes so far and the law of the provinces/territories takes over.)
Finally, while I know this case was about an Alberta widow. I was wondering about Quebec Law. Several pertinent articles of the Civil Code of Quebec 4 are as follows: “378. Le mariage se prouve par l’acte de mariage, sauf les cas où la loi autorise un autre mode de preuve.1991, c. 64, a. 378. 516. Marriage is dissolved by the death of either spouse or by divorce. 1991, c. 64, a. 516.” Simply put, death ends a marriage in Quebec. Accordingly, a surviving Quebecer does not continue to be the “spouse” of his/her deceased partner. It’s true that the civil code governs a number of areas affecting relations between individuals. However, in my belief, finding a dead man to be the husband of his widow would turn our law on its ear.
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“If I get married, I want to be very married.” – Audrey Hepburn 5
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CONCLUSION
The judgment in this case has wide application.
Many Canadians have RRSPs (or RRIFs). Failure to designate a beneficiary and meeting certain conditions means that funds will be withdrawn and tax will be paid. Canadians with RRSPs (or RRIFs) do die while owing taxes. This appeal case judgment seems to be the ‘deliverer’ of a widow/widower whose spouse did designate him/her as RRSP beneficiary. That’s why designating an RRSP beneficiary is critical.
In closing, as a lawyer Montreal and elder law attorney, I must say, “this Canadian widow fought the law (CRA) and she won!” And many are glad she did.
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NOTICE – CAUTION –DISCLAIMER. The material provided herein is of a general nature, strictly for informational purposes. The interpretation and analysis is not to be misapplied to a personal situation with a particular set of facts. Under no circumstances, are the herein suggestions and tips, intended to bring a reader to the point of acting or not acting, but instead, the hope is that they are to be a cause for pause and reflection. It is specifically declared that this content is not to be a replacement of, or a substitution for, legal or any other appropriate advice. To the contrary, for more information on these presents, related subjects or any other questions, it is the express recommendation of the author that everyone seek out and consult a qualified professional or competent adviser.
1. https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/t4040/rrsps-other-registered-plans-retirement.html
2. RSC , 1985, c. 1 (5th Supp.)
3 https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/personal-address-information/marital-status.html
4. Code civil du Québec- ccq-1991
5 https://www.brainyquote.com/quotes/audrey_hepburn_163337
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