Canadian widow classed as spouse, for purposes of taxing husband's estate

Marlene Enns' husband had designated her as the sole beneficiary of his RRSP. Following his death in 2013, the RRSP’s fair market value of just over CAD100,000 was paid out to her. She later transferred it into her own locked-in retirement account.

Four years later, the Canada Revenue Agency (CRA) decided she was liable for her late husband's CAD146,000 estate tax liability under s.160(1)(a) of the Income Tax Act, which enables the CRA to recover a tax debt by clawing back money transferred by a taxpayer to a non-arm's length party. The section states that, 'where a person has ... transferred property, either directly or indirectly, by means of a trust or by any other means whatever, to (a) the person's spouse or common-law partner or a person who has since become the person's spouse or common-law partner ... (d) the transferee and transferor are jointly and severally ... liable to pay a part of the transferor's tax ... for each taxation year'.

The CRA asserted that Enns was caught by this clause, as her husband's spouse, even though he was no longer alive when the transfer took place. She challenged the assessment, arguing that the RRSP funds were transferred to her after her husband’s death, by which time she had ceased to be his spouse and instead become his widow.

The case duly went to the Tax Court, which examined its two previous decisions on the same matter. Unfortunately, they were contradictory: in the 2013 Kiperchuk case the court found that a spouse is no longer a spouse after death for the purposes of s.160; however, in the 2016 Kuchta case it concluded that a widow remained a spouse for s.160 purposes. Therefore, in one case the widow was found liable and in the other she was not.

The Tax Court decided to follow the decision in Kuchta on the principle of judicial comity. It accordingly found that Enns was still a spouse after her husband's death and so the RRSP funds were accessible to the CRA (Enns v The King, 2023 TCC 28).

'The decision appears to expand the CRA's reach in terms of accessing estate assets after death when tax liability is owed by the estate', commented Nicole Cianci and Maddi Thomas of Miller Thomson. 'Estate planners should advise clients that a registered account with a spousal designation will not necessarily pass outside the estate in all circumstances.'

Sources

• Miller Thomson
• CANLII