Let’s say your spouse passes away. It’s a difficult time — you’re grieving, managing the estate, and dealing with paperwork galore. But what if, months later, the Canada Revenue Agency (CRA) comes knocking, telling you that you owe thousands of dollars because of your late spouse’s tax debt?
That’s exactly what happened to Marlene Enns, a widow from Alberta. She got tangled up in a surprisingly technical tax question: Was she still Peter Enns’ “spouse” even after he died? Believe it or not, the affirmative answer to that question gave rise to a six-figure liability on Marlene’s part, as far as the Canada Revenue Agency (CRA) was concerned.
The Setup: A Widow, an RRSP, and a Tax Bill
Peter Enns passed away in 2013. Like many Canadians, he had a Registered Retirement Savings Plan (RRSP) — in his case, worth nearly $103,000. He named his wife Marlene as the beneficiary, and she was paid the funds as intended – skipping the estate process entirely, just as the law allows.
But what complicated things was that Peter owed the CRA nearly $150,000 in back taxes when he died. The CRA decided to take advantage of the little-known section 160 of the Income Tax Act.
That provision allows the CRA to go after a taxpayer’s spouse or common-law partner – holding them jointly liable for unpaid taxes – if they directly or indirectly received money or property from the taxpayer at a time when his or her tax debt was in place. More to the point, the CRA can go after the spouse for the lesser of:
- the difference between what the property was actually worth at the time it was transferred, and what the recipient actually paid for it (if anything); and
- the unpaid tax debt that the taxpayer owed.
Importantly, this option exists for the CRA even after the taxpayer dies – but only if the recipient of the transfer is still considered a “spouse”.
So… Was She Still a “Spouse”?
You’d think the answer would be obvious: Death ends a marriage. We all know the phrase “till death do us part,” and legally, once someone dies, the marriage ends.
But when it comes to taxes, it seems that things are rarely so straightforward.
The CRA said Marlene was still Peter’s “spouse” for tax purposes. Why? Because the money went straight to her — not through the estate — and she was his spouse immediately before he died. Based on that, they hit her with a bill for the full amount of the RRSP: $102,789.52.
The Tax Court vs. the Federal Court of Appeal
Marlene objected to that finding, and brought the matter before the Tax Court. But it sided with the CRA, and concluded that the term “spouse” can indeed still apply even after death, especially when the tax rules do not clearly say otherwise.
Marlene then brought an appeal to the Federal Court of Appeal, which overturned the first ruling as well as a precedent decision on this issue. It took a hard look at what the term “spouse” really means in the context of section 160 of the Income Tax Act. After reviewing legal and dictionary definitions, it concluded that a “spouse” is defined as a married person. By extension, a person stops being a “spouse” in law when their partner dies. The common-sense approach governs, unless the legislation clearly provides otherwise (which in this case, section 160 does not).
This interpretation is also the most fair: If Marlene was required to pay Peter’s tax debt, this would not operate to eliminate her tax liability when she withdraws the funds. The net result would be an unfair financial hardship, which was not in keeping with the purpose of the Income Tax Act.
The court ultimately ruled that the transfer of the RRSP from Peter to Marlene did not count as a transfer to a “spouse” under section 160, and Marlene was relieved of responsibility for Peter’s tax debt. She was entitled to retain his retirement savings.
The Takeaway
The Enns decision clarifies that for Income Tax purposes, the status of “spouse” ends on the death of one partner; the surviving partner cannot be held liable for the deceased taxpayer’s tax debts under section 160 unless the property transfer takes place during the marriage. This provides certainty about how the law operates, and preserves the tax-deferral aspect that is built into the RRSP regime.
If you and your spouse have RRSPs, you might be concerned about how the law might affect you in the event one of you dies. If this is the case, feel free to give our offices a call: We’ll give you advice that is tailored to your circumstances.
For the full text of the decision, see:
Enns v. Canada, 2025 FCA 14 (CanLII), <https://canlii.ca/t/k90f8>
