Widow to keep $100k from late husband’s RRSP after court victory against Canada Revenue Agency

January 23, 2025 Canuck

An Alberta widow will be allowed to keep tens of thousands of dollars her late husband left to her in retirement savings after winning a years-long court battle against the Canada Revenue Agency.

The ruling Tuesday said Marlene Enns is exempt from a clause in Canadian tax law that gives the tax agency power to collect unpaid tax debts from spouses or common-law partners in certain cases because, under law, her marriage ended the moment her husband died.

“A person is only a ‘spouse’ for the period during which that person was married and, therefore, when a marriage ends, a person ceases to be a ‘spouse’,” the judge wrote.

The appeal court ruling settles a question that for years did not have a clear answer, after other cases involving widows in the Tax Court of Canada ended with conflicting answers: what should the definition of “spouse” be in cases like the one involving Enns.

Lawyers say it was an important issue to settle when it comes to a tool the CRA, which one described as one of the most forceful creditors in the country, can use to hold certain people responsible for another person’s tax debt under some circumstances.

“It’s good news for spouses of deceased people who owe taxes, for the taxpayer community and for Canadians,” said lawyer Lori Bokenfohr, who is not connected to the case but specializes in tax law.

“I mean, family members are constantly giving each other gifts. You don’t have to be wealthy to have a a problem under Section 160.”

Exterior of a circa 1913 building with Gothic and Tudor Revival features. — The CRA wanted to collect the full amount Marlene Enns inherited from her husband Peter’s RRSP — $102,789 — to cover what he owed in taxes. (Felix Desroches/CBC/Radio-Canada)

Widow on the hook for unpaid tax, CRA says

Marlene Enns was the only beneficiary when Peter Enns, her husband of nearly 40 years, died in 2013. She inherited an RRSP worth a little more than $102,000 and put it into her own, locked-in bank account.

Four years later, an assessment from the CRA found Peter had owed nearly $150,000 in income tax when he died.

The agency turned to a collections tool available under the Income Tax Act to try to get the money from Marlene, as Peter’s spouse. Under the tool, called Section 160, the CRA can hold someone who receives property from close contacts like friends and family for less than fair market value responsible for their outstanding tax debt.

The clause is meant to stop Canadians from giving their property — be it cash, a car, a house or any other asset — to someone at arm’s length while they, on paper, look like they don’t have enough money to pay their fair share of taxes.

But the clause also means anyone who gives property to a loved one can end up sticking them with their tax bill, without realizing they’ve done so.

“Here the CRA said, ‘Well, wife, you’ve received this RRSP for no proceeds — it’s a gift under the will — and your late husband owed tax at the time when he died, so now it’s your tax problem as well,” said Bokenfohr, who practices in Calgary.

The CRA wanted to collect the full amount Marlene got from Peter’s RRSP — $102,789 — to settle his income tax debt.

‘Spouse’ not clearly defined

Marlene eventually took the issue to court. She said the tax agency couldn’t use Section 160 to collect because the definition of “spouse” does not include a widow.

The Tax Court of Canada ruled against Marlene in 2023, finding that Marlene was still defined as Peter’s “spouse” in the matter even after his death.

The Federal Court of Appeal went the other way on Tuesday.

By several legal and dictionary definitions, the higher court said, a spouse is defined as a married person. Again by definition, it said, a marriage ends at the moment one partner dies — so Marlene wasn’t a “spouse” when she inherited the retirement savings because Peter had died.

The court said that means the CRA can’t use Section 160 to collect from Marlene and settle Peter’s debts. It also ordered the CRA to cover Marlene’s legal bills.

CBC News contacted the CRA for comment but did not receive a response by publication.

Chad Brown, Enns’s lawyer, said he sees the case as an example of the CRA using the clause to get around protections that are in place to shield RRSPs from being taxed.

“This approach has inequitable consequences. As the Federal Court of Appeal noted in Enns, not only does the CRA collect the funds from the deferred plan, but the surviving spouse is also taxed on the withdrawal of those funds, leaving them worse off overall,” he wrote in an email.

Up until the Enns case, the Tax Court of Canada was divided over the definition of spouse under Section 160. One case found the term “spouse” did not include widows in 2013, but another decision two years later found that widows were still spouses.

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