Under s. 160(1) of the Act, a transfer of property by a tax debtor to his or her spouse or common law partner at less than fair market value may make the recipient jointly or severally liable for some, or all, of the transferor’s tax debt.
In Enns v. Canada, 2025 FCA 14, released on Jan. 21, Justice Wyman Webb overturned the Tax Court’s finding that a widow continues to be considered a “spouse” of a deceased tax debtor under section 160.
The Tax Court had reasoned that excluding widows from this definition would render section 160(1) meaningless.
“[F]inding 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,” wrote Justice Webb.
The appellant, Marlene Enns, was designated as the sole beneficiary of her husband, Peter Enns’s RRSP. Peter Enns died on May 22, 2013.
The fair market value of his RRSP at the time was $102,790. He also had an outstanding tax liability greater than the fair market value of the RRSP.
The appellant was assessed under section 160 of the Act for the amount equal to the fair market value of the RRSP on the basis that she was the spouse of Peter Enns when the RRSP was transferred to her following his death.
Enns appealed the decision to the Tax Court.
The Tax Court cited Kuchta v. The Queen, 2015 TCC 289, in which the Tax Court found that, for the purposes of section 160 of the Act, a “spouse” includes a widow or widower.
In Kuchta, the Tax Court noted that the term “spouse” was not defined in the Act, and acknowledged that in legal terms, marriage ends on death.
However, the Tax Court had also considered the ordinary use of the word “spouse” in conversations, obituaries and newspaper articles to refer to a surviving member of a couple.
After completing a contextual and purposive analysis, the Tax Court judge in Kuchta concluded that there was nothing in the Act that would exempt transfers on death from the application of section 160 of the Act.
In the case at bar, the Tax Court adopted the reasoning and the conclusion in Kuchta, finding that Marlene Enns was still the “spouse” of Peter Enns following his death and dismissed the appeal.
Enns appealed the decision to the Federal Court of Appeal.
Justice Webb noted that in both The New Shorter Oxford English Dictionary on Historical Principles and Black’s Law Dictionary, a “spouse” is defined as a “married person.”
“This would mean that 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.
He further noted that in Kuchta the Tax Court failed to take into account the definition of “common-law partner” in subsection 248(1) of the Act in its contextual analysis.
The judge highlighted that the definition of common-law partner in s. 248(1) provided that where a taxpayer and another person cohabit in a conjugal relationship, they are, at any particular time after that time, deemed to be cohabiting in a conjugal relationship.
The judge noted that the deeming rule results in two persons being deemed to continue to cohabit in a conjugal relationship unless they were living separately at a particular time for a period of at least 90 days because of a breakdown of their conjugal relationship.
“Therefore, in the event of the death of one of the partners, the two partners would continue to be deemed to be cohabiting in a conjugal relationship (and hence to be “common-law partners”) forever. This could not have been the intended result,” the judge wrote.
The court also highlighted that when Parliament added the definition of “common-law partner” to the Act, it intended the Act to apply equally to couples, whether they were married or in a common-law partnership.
The judge also noted that under s .251, when a married person dies, their surviving spouse is no longer connected by marriage to the deceased's blood relatives.
“To have the same rules apply to individuals in a common-law partnership, that relationship would also have to cease upon the death of one of the partners,” the judge wrote.
The judge therefore ruled that since a common-law partnership is the relationship between common-law partners, Parliament must have intended that the deeming rule in the definition of “common-law partner” would only apply while both partners are still living.
He found therefore that when an RRSP is transferred to the surviving partner as the designated beneficiary of the RRSP, it would not be a transfer of property to a “common-law partner.”
The judge concluded that to treat “common-law partners” and married couples equally, the transfer of a deceased individual’s RRSP to the person who was their spouse immediately before their death would not be a transfer of property to a “spouse” under s.160.
With respect to the purpose of s.160, the judge observed that under the rules set out in s.60 and s. 146 of the Act, when an individual designates their spouse as the beneficiary of their RRSP, no tax will be payable by the surviving spouse on the death for the transferor.
The court noted the such a designated beneficiary can, if they transfer the amount in the RRSP to their own RRSP, defer the tax liability related to the amount in the RRSP until they eventually withdraw the amount from their RRSP.
Justice Webb noted that in the case at bar, the appellant had transferred the amount she received from Peter Enns’s RRSP into her locked-in retirement account with the Royal Bank.
He noted that if the funds from her husband’s RRSP were required to pay her husband’s tax debt, she would have to withdraw the funds from the locked-in retirement account and would then be liable to pay the tax incurred on this withdrawal of funds.
“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,” the judge wrote.
The judge noted that these tax consequences could also explain why the legal and ordinary meaning of “spouse” is the correct interpretation of the word for the purposes of paragraph 160(1)(a) of the Act.
Justice Webb concluded that the appellant was not the “spouse” of Peter Enns when his RRSP was transferred to her as the designated beneficiary of his RRSP after his death.
The court allowed the appeal and set aside the decision of the Tax Court.
Justices K.A. Siobhan Monaghan and Elizabeth Walker concurred in the decision.
Counsel for the appellant, Chad Brown of TaxCounsel.ca said that in this and other similar cases, the CRA is attempting to use section 160 to bypass important protections granted by Parliament to deferred plans.
“This circumvention clearly undermines Parliament’s intent, particularly when considering that sections 160.2 and 160.3 of the Income Tax Act already address joint and several liability for funds withdrawn from deferred plans in the context of income tax,” he told Law360 Canada.
He noted that these sections are the legislative tools intended to enable the CRA to recover income tax associated with deferred plans.
“Yet, the CRA often chooses to assess under the broader section 160, enabling it to seize funds in deferred plans in order to settle other tax debts of the deceased taxpayer,” he added.
James Alvarez of TaxCounsel.ca also acted as counsel for the appellant.
Counsel for Canada were Courtney Davidson and Ramneek Kaur Sidhu of the Department of Justice Canada.
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