Maddi Thomas, associate, and Donya Ashnaei, articling student, Gowling WLG (Canada) LLP

Background

I wrote a blog post on Enns v the King, 2023 TCC 28, last year. This case was significant for estate planners, as the ruling extended the Canada Revenue Agency’s (“CRA”) reach under section 160 of the Income Tax Act (the “Act“). A little over a week ago, the Federal Court of Appeal (“FCA“) overturned the TCC’s decision, in Enns v. The King, 2025 FCA 14, ruling that a surviving spouse, or a “widow(er)”, is no longer considered a “spouse” after their partner’s death for the purposes of section 160.

Under section 160, if an individual (“transferor”) transfers property to their spouse or common-law partner (“transferee”) for consideration less than the fair market value of the property, the Minister of National Revenue can assess the transferee for all or part of the transferor’s unpaid tax debt, and “claw back” the funds if required. This prevents individuals from hiding their assets with their spouse when they owe a debt to the CRA.

In 2023, the Tax Court of Canada (“TCC“) arguably “extended” the definition of a spouse in Enns, when it ruled that a “widow(er)” could classify as a spouse for the purposes of section 160 of the Act. Whether a person is considered a “spouse” of a deceased individual affects whether registered plan transfers are subject to section 160’s “claw back” mechanism. Typically, when designated, registered plans “pass outside of the estate”, meaning they do not form part of the deceased’s estate and are directly transferred to the designated beneficiary upon the plan owner’s death. The TCC’s decision in Enns (2023) permitted the CRA to access registered plans that were transferred directly to widow(er)s in cases where the deceased taxpayer died with a tax liability even though same did not form part of the deceased’s estate.

The FCA Case

To quickly summarize the facts[1], the appellant, Marlene Enns (“Marlene”), was married to Peter Enns (“Peter”), who designated her as the sole beneficiary of his RRSP. Peter owed a tax liability at death. Marlene was assessed under section 160 of the Act for an amount equal to the fair market value of the RRSP, based on her status as Peter’s “spouse” at the time the RRSP was transferred to her after his death. The main issue on appeal was whether Marlene was still considered Peter’s “spouse” following his death, rather than his “widow”.

The FCA conducted a textual, contextual, and purposive analysis to conclude that widows and widowers are not considered “spouses” for purposes of section 160.

The FCA’s decision turned on its contextual analysis, wherein it used the statutory definition of “common-law partner” to interpret the meaning of “spouse.” Section 160(1)(a) of the Act reads as follows:

Where a person has, on or after May 1, 1951, transferred property, either directly or indirectly, by means of a trust or by any other means whatever, to:

(a) the person’s spouse or common law partner or a person who has since become the person’s spouse or common law partner…the following rules apply… [underlining added]

The court reasoned that, within context, section 160 of the Act applies equally to both spouses and common-law partners. Under the Act, to satisfy the definition “common-law partners”, individuals must be living in a conjugal relationship, which ends upon the death of one partner. To maintain equal treatment between married couples and common-law partners, the FCA concluded that individuals who were married could no longer be considered “spouses” after the passing of one partner. Any other interpretation would mean that common law spouses could benefit differently from registered plan transfers than married couples, which would be an untenable outcome.

The decision was further supported by a textual analysis, which found that the ordinary meaning of “spouse” refers to a person who is married, and marriage ends upon death. In its purposive analysis, the FCA determined that Parliament could not have intended for a widow(er), such as Marlene, to be liable for the assessment amount, and face significant tax liability when the funds are withdrawn.

Key Takeaways

The FCA’s judgment in Enns offers welcome relief to taxpayers and estate planners. Before the decision was overturned, the TCC’s ruling seemed to extend the CRA’s ability to access a widow(er)’s funds after their spouse’s death where the deceased spouse owed money to the CRA. Following the FCA’s decision, widow(er)s who directly inherit their deceased spouses’ registered plan can feel confident that this beneficiary designation will not be subject to section 160’s “claw back” provisions, even if the deceased had a tax liability at death

Estate planners should continue to emphasize the importance of designating beneficiaries for RRSPs, TFSAs, and other registered plans to clients and incorporate direct registered plan transfers into their succession planning strategies. Beneficiary designations now serve to reduce probate fees where the registered plan “passes outside of the estate”, and protects widow(er)s from paying their deceased partner’s tax bill.

[1] See previous blog post for a detailed discussion of the facts and TCC’s reasoning in Enns v the King, 2023 TCC 28.