Imagine learning, after your spouse’s passing, that the Canada Revenue Agency is coming after you, for your spouse’s tax debt. “Until death do us part” may have been a vow of love, but in the eyes of the tax authorities, the financial bond can linger well beyond the grave. If you receive assets from a deceased spouse who owed taxes, are you on the hook?

A recent Federal Court of Appeal decision highlights the importance of a direct beneficiary designation to protect retirement savings against estate claims, including unpaid taxes.

When are you considered a spouse – And why it matters for taxes

Marriage is an important milestone in cultures around the world.  The status of husband or wife also gives rise to legal rights and obligations.  Some – but not all – Canadian jurisdictions grant common-law partners similar rights and obligations to those of married persons. What legally constitutes a common-law relationship differs across Canada, and can be quite subjective, leading to uncertainty in some cases. Determining whether a person is married or not, and therefore whether they are a legal “spouse” is usually more clear.

Recently, in Enns v Canada, 2025 FCA 14 (“Enns”), the definition of spouse came under scrutiny, specifically with reference to whether a surviving partner was still considered a “spouse” after death, for the purposes of the Income Tax Act (the “ITA”).

Can you inherit a tax bill? Understanding section 160 of the ITA

Each individual in Canada is a separate taxpayer who is responsible for payment of their own tax liability.  Spouses and common-law partners are not automatically liable to pay their partners’ tax.  However, section 160 of the ITA permits the collection of unpaid tax from persons other than the primary taxpayer.

Specifically, paragraph 160(1)(a) of the ITA stipulates that, where a person transfers property to their spouse or common-law partner for less than fair market value (e.g. a gift), at a time when the person is liable for unpaid tax, the Minister of National Revenue (the “Minister”) can assess the receiving spouse or common-law partner for the unpaid tax, up to the value of the gift.  This prevents a tax debtor from giving property to their spouse to avoid the payment of tax.  Similar rules apply for transfers of property to minors and persons with whom the tax debtor does not deal at arm’s length.

Case study: Enns – Is a spouse still a “spouse” after death?

The deceased passed away in 2013, leaving behind a Registered Retirement Savings Account (“RRSP”) worth $102,789.52. Unfortunately, he died owing taxes in excess of this amount. The deceased’s wife was the designated beneficiary of the RRSP, and received the funds directly from the RRSP account following her husband’s death.

The Minister assessed the deceased’s wife to recover the entire value of the RRSP. She argued that as he was deceased, she was no longer the deceased’s spouse, and therefore, the Minister could not pursue her for his tax debt.

The Tax Court considered two previous cases which reached opposite conclusions as to whether a person ceased to be a spouse upon the death of their wife or husband: Kiperchuk v The Queen, 2013 TCC 60, and Kuchta v The Queen, 2015 TCC 289.

  • The Tax Court favoured the analysis in Kuchta v The Queen, which found that, for the purposes of para. 160(1)(a) of the ITA, a person did not cease to be a spouse on the death of their wife or husband.  Therefore, in this case Ms. Enns was liable for the deceased’s tax. She successfully appealed.
  • After completing textual, contextual and purposive analyses of the word “spouse” in para. 160(1)(a) of the ITA, the Federal Court of Appeal held that her status as a spouse ceased on the deceased’s death, and she was not subject to assessment for his tax liabilities.  The Court noted that if she was required to withdraw the full amount of the RRSP to pay the deceased’s tax debt, she would then be liable herself for tax on the withdrawn amount; a result that Parliament may not have intended.
  • Practical consequences from the Enns decision
  • While the decision may seem a welcome relief for widowed spouses, there are two important caveats:
  • First, the long-term consequences of the decision are uncertain. The Court’s reasoning has already been subject to some criticism.  The Minister may appeal to the Supreme Court of Canada, particularly given the conflicting Tax Court decisions to date. Also, the ITA might be amended to clarify that a deceased’s former spouse is liable for his or her tax liability, in circumstances akin to this one. For now however, designating your spouse as a beneficiary of your RRSP may protect them from tax claw backs after your death.
  • Second, it is important to distinguish between a direct beneficiary designation and assets passing to a surviving spouse through a will. RRSPs, RRIFs, tax-free savings accounts and other registered accounts can bypass the estate if there is a direct beneficiary designation. This can protect the money in these accounts from the claims of estate creditors. Had the RRSP in Enns fallen into the deceased’s estate, the entire value would have been available to satisfy his outstanding tax liability, even if the deceased’s wife was the beneficiary of his estate.  
  • Direct beneficiary designations are not always appropriate, and should not be undertaken without proper advice.  If you have questions about beneficiary designations, what will happen to your registered accounts upon your death, or protecting your loved ones from future disputes or tax liabilities, please contact Miller Thomson’s Private Client Services team for a consultation.

If you’ve been asked to pay taxes or other liabilities owed by a deceased spouse or family member, it’s important to seek legal advice tailored to your situation.

Our Estate and Trusts Litigation group has extensive experience advising clients on beneficiary disputes, tax assessments, and litigation involving spousal rights and obligations. We are available to help you understand your options, assert your rights, and protect what matters most.