The Federal Court of Appeal has issued a significant ruling this week in the case of Enns v. Canada, limiting the Canada Revenue Agency’s (CRA) ability to collect tax debts from surviving spouses who receive Registered Retirement Savings Plan (RRSP) proceeds.
The ruling Tuesday said Marlene Enns is exempt from a clause in the Income Tax Act that gives the CRA 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.
Peter Enns, Marlene’s husband, died in May 2013, leaving her as the sole beneficiary of his RRSP. The CRA discovered that Peter owed approximately $150,000 in income tax and sought to collect the full amount of the RRSP transfer, $102,789.52, from Marlene. The Tax Court of Canada initially ruled against Marlene in 2023, but the Federal Court of Appeal reversed this decision.
The court based its decision on several key points:
- The legal and dictionary definitions of “spouse” typically refer to a married person.
- A marriage ends at the moment one partner dies, therefore Marlene wasn’t a “spouse” when she inherited the retirement savings. As we say around here, death can be considered divorce by extreme measures.
- The court considered the definition of “common-law partner” in the Act, which implies a living relationship.
This ruling represents a significant shift in the interpretation of tax law and may provide relief to surviving spouses who receive RRSP proceeds from their deceased partners, protecting them from unexpected tax liabilities.
Nicole Garton is president and co-founder of Heritage Trust.
Recognized by Best Lawyers in Canada for trusts and estates and family law, she previously chaired the Canadian Bar Association Wills and Trusts Subsection (Vancouver).
Contact Nicole by email or phone at (778) 742-5005 x216.
Heritage Trust is a leading non-deposit taking financial institution, regulated by the BC Financial Services Authority (BCFSA), a government agency of the Province of British Columbia. Heritage Trust offers caring and professional executor, trustee, power of attorney, committee, escrow and family office services to BC resident clients.
We welcome you to contact us.