Kevin Wilbee
Lawyer,
Will & Estates
A recent Federal Court ruling protects surviving spouses from inheriting their late partner’s tax debts, setting a
crucial legal precedent.
When Marlene Enns lost her husband, she thought she had done everything right to protect her future — until the Canada Revenue Agency (CRA) came calling with a $150,000 bill.
In a pivotal ruling, the Federal Court of Appeal has ruled in favour of Marlene, an Alberta widow, allowing her to retain her late husband’s retirement savings without the obligation to pay his outstanding tax debts. This decision clarifies the interpretation of the term “spouse” under the Income Tax Act, overturns a previous Tax Court of Canada ruling, and has significant implications for tax law and family finances.
The case
Marlene’s late husband, Peter Enns, had designated her as the sole beneficiary of his Registered Retirement Savings Plan (RRSP), valued at $102,789. He died in 2013, and the funds were paid to Marlene in accordance with the beneficiary designation. Several years later, the CRA sought to recover Peter’s unpaid tax debts, amounting to nearly $150,000, from Marlene. Under section 160(1) of the Income Tax Act, the CRA attempted to invoke a provision that holds individuals who receive property from a tax debtor at less than fair market value jointly liable for the debtor’s tax obligations.
In 2023, the Tax Court of Canada ruled in favour of the CRA, concluding that Marlene remained a “spouse” for the purposes of section 160, despite her husband’s death.
The appeal
Marlene appeald this decision, aruing that the term “spouse” should not include a widow, as a marriage legally ends upon the death of one partner. In its decision, the Federal Court of Appeal agreed with her position, overturning the Tax Court’s ruling.
Justice Wyman Webb, writing for the court, stated that, according to legal and dictionary definitions, a “spouse” is defined as a married person, and marriage ceases upon death. Consequently, when the RRSP was transferred to her after his death, Marlene was not considered Peter’s spouse. As a result, the court determined that the CRA could not use section 160 to collect Peter’s tax debt from Marlene.
The court also found that the definition of “common-law partner” contemplates two individuals who are cohabiting in a conjugal relationship and that a person is no longer a “common-law partner” following the death of their partner. The court held that treating “common-law partners” and married couples equally, transferring a deceased individual’s RRSP to their surviving partner as the designated beneficiary, would not be a transfer of property to a “spouse” under section 160.
This decision also highlighted the broader context of Canadian tax law, noting that provisions like section 60 and section 146 of the Income Tax Act allow for tax deferral on RRSPs, which was the intent when Peter designated Marlene as his beneficiary. The court emphasized that requiring Marlene to pay Peter’s tax debt, especially given that she would face further taxation upon withdrawing the funds, would impose unfair financial hardship, contrary to the purpose of the legislation.
How this affects Canadians
This landmark decision clarifies the definition of “spouse” for individuals across Canada, especially those who have lost a partner and are dealing with the complexities of inheritance. The Tax Court had been divided on this issue, with conflicting rulings on whether a widow could be considered a spouse under the provision. The Federal Court of Appeal’s ruling resolves this uncertainty, affirming that the legal definition of a spouse ends upon the death of one partner and that the surviving partner cannot be held liable for tax debts under section 160 unless the property transfer occurs during the marriage. This allows the surviving partner to retain their inherited retirement savings without facing additional hardship.
The Federal Court of Appeal’s decision in Enns v. Canada, 2025 FCA 14 sets an important legal precedent regarding the interpretation of the term “spouse” under the Income Tax Act. This decision provides certainty for surviving partners in similar situations and reinforces the intent behind tax deferral provisions for retirement savings. As a result, the ruling appears to protect individuals from unjust financial burdens that could arise from the death of a partner — ensuring that tax law aligns more fairly with the realities of family finances — and highlights the vital role of consulting a skilled estate planning lawyer to provide clarity and safeguard the interests of surviving loved ones.
Ensure your estate plan protects your loved ones. Speak with a legal expert today at lerners.ca.
