Federal Court of Appeal Protects Widow from $100,000 CRA Tax Assessment

In a significant ruling, the Federal Court of Appeal has clarified the application of the Income Tax Act's derivative tax provisions, offering relief to a widow who faced a substantial tax liability.

Case Overview: Enns v. The King (2025 FCA 14)

The case involved a widow who received her late husband's Registered Retirement Savings Plan (RRSP) proceeds after his death. The Canada Revenue Agency (CRA) sought to apply Section 160 of the Income Tax Act, which holds transferees liable for the transferor's unpaid taxes, arguing that the widow was a "spouse" at the time of the transfer.

However, the Federal Court of Appeal disagreed, ruling that the term "spouse" under Section 160 does not include a widow or widower. The court emphasized that the derivative tax provision applies only to transfers made while both parties are alive and married. Since the transfer occurred after the husband's death, the widow was not considered a "spouse" under the Act, and thus, the CRA's assessment was invalid.

Implications for Taxpayers

This decision underscores the importance of timing in applying derivative tax rules. While the ruling provides relief for the specific circumstances of this case, it does not grant blanket immunity to all widows and widowers. If property is transferred before the death of a spouse, the derivative tax provisions may still apply.

Taxpayers and legal professionals should carefully consider the timing of asset transfers and seek professional advice to navigate the complexities of tax law effectively.