Enns v. Canada, 2025 FCA 14

On 21 January 2025, a Federal Court of Appeal ruled that Marlene Enns, a widow in Alberta who inherited an RRSP from her late husband, is exempt from Section 160 of the Income Tax Act that gives the Canada Revenue Agency (CRA) power to collect unpaid tax debts from spouses or common-law partners. This decision held that marriage ends at the moment when a spouse dies.

Background

Peter Enns (Marlene Enns's late husband) had designated his wife as the only named beneficiary to his RRSP account. When he died in 2013, the funds for the amount of about $102,000 was transferred to her locked-in account.

Four years later, an assessment from the CRA found that Peter had owed nearly $150,000 in income tax in his final tax return. Taking the position that Marlene is Peter's spouse, the CRA used Section 160 of the Income Tax Act to collect the unpaid tax from her. Pursuant to Section 160, any individual who receives properties not at arm's length can be held responsible for the outstanding tax liability of the giver. The transferee and transferor are jointly and severally, or solidarily, liable to pay a part of the transferor's tax.

This clause holds a person (not only spouse) who has received properties not at arm's length liable for the giver's tax liabilities during his or her life time or after death.

Marlene litigated against the position of CRA in court and argued that the CRA cannot use Section 160 to collect tax debt from her because the definition of "spouse" does not include a widow. The Tax Court of Canada heard the case on 23 March 2022 and ruled against Marlene on 8 March 2023, finding that Marlene was still defined as Peter's "spouse" in the matter even after his death (Enns v. The King 2023 TCC 28).

Marlene appealed the judgement in the Federal Court of Appeal. Her case was heard on 22 October 2024 at Edmonton, Alberta. The judgement Enns v. Canada, 2025 FCA 14 in her favor was handed down on 21 January 2025. The higher court held that a spouse is defined as a married person. A marriage ends as soon as one partner dies. Hence, Marlene was no longer a "spouse" when she inherited the RRSP savings because Peter had died. The court held that the CRA cannot use Section 160 to collect from Marlene to settle Peter's tax debts. The Court allowed her appeal, set aside the judgment of the Tax Court, vacated the CRA assessment on her and granted her costs in the Tax Court and in this appeal.

Noteworthy Points

1. This is good news for spouses of deceased people who owe taxes. However, this decision only dealt with the notion of spouse. If the recipients in question are not spouses of the deceased (such as children and parents), Section 160 still applies.
2. For income tax purposes, this decision clarified 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". It acknowledged that a marriage ends on death and settled the definition of spouse of a deceased taxpayer that did not have a clear answer for years in tax law.
3. Section 160 (1) (c) stipulates that a person (recipient) with whom the person was not dealing at arm's length can be held liable to unpaid taxes of the giver. The CRA still retains broad power to collect tax debts from other options.

Remarks

Despite that Marlene Enns won the case and was awarded costs, this tax litigation nightmare has been haunting her since 2017 (four years after her husband died). It is hard to imagine the financial and emotional distress a widow of her age had suffered. If the court has not awarded costs, her legal expenses may be close to, if not greater than, the amount that the CRA is seeking from her. Now, the decision of the Federal Court of Appeal obliged taxpayers to pay the legal expenses of both sides.

References

• Enns v. The King 2023 TCC 28 (8 March 2023, heard on March 23, 2022, at Edmonton, Alberta)
• Enns v. Canada, 2025 FCA 14 (21 January 2025, heard on 22 October 2024 at Edmonton, Alberta)