The recent Federal Court of Appeal decision, Enns v Canada (2025 FCA 14), clarified the definition of “spouse” in the context of section 160 of the Income Tax Act (“ITA“). This section allows the Canada Revenue Agency (“CRA”) to hold a transferee accountable for any outstanding debt when property is transferred to a “non-arm’s length” individual—such as a spouse—and the transfer occurs for less than fair market value.
Are Surviving Spouses Still Considered Spouses for Tax Liability Purposes?
Background
Marlene Enns was the beneficiary of her husband’s Registered Retirement Savings Plan (RRSP). When her husband passed away, she was entitled to the RRSP which was valued at $102,789.52. At the time of her husband’s death, he had an outstanding tax liability with the CRA, who then attempted to collect this amount from his wife under section 160 of the ITA, ultimately holding her liable for the unpaid taxes.
Tax Court of Canada Decision
This issue was originally considered in the Tax Court of Canada case of Kuchta v The Queen, where it was held that under section 160, following the death of a partner, the surviving spouse nonetheless remains a “spouse.” This was the original reasoning that was applied in Enns and as such, the Tax Court upheld the CRA’s assessment.
Federal Court of Appeal
This decision was reversed in the Federal Court of Appeal where it was held that upon death a surviving spouse is not considered a spouse under section 160 of the ITA. The Court reasoned that the ordinary meaning of “spouse” refers to a person who is married to another individual and upon the death of one individual the survivor is no longer a “spouse” of the deceased. The Court also undertook an analysis of the term “common-law” reasoning that this term only applies when both individuals are alive and analogized this to marriage. Additionally, it was held that the purpose underlying the provision was not aimed at extending liability for a deceased’s tax debts under section 160 of the ITA.
Implications
The precedent setting decision has a number of significant implications for tax liability. This decision provides increased protection for surviving spouses by limiting the ability of the CRA to assess surviving spouses under section 160.
For taxpayers, this ruling highlights the importance of strategic planning to minimize unexpected tax burdens. Engaging with tax professionals ensures that estate plans remain effective amid evolving legal interpretations. Reviewing beneficiary designations and consulting with tax advisors can help assess potential tax liabilities and develop proactive strategies to mitigate them.
***Disclaimer: This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions, you should consult a lawyer.
Michelle Kosarnia