In Kuchta v The Queen, 2015 TCC 289, the Tax Court of Canada had occasion to consider some interesting issues with respect to the meaning of “spouse” in the Income Tax Act, R.S.C., 1985, c. 1 (5th Supp.) (the “ITA”) and a spouse’s joint and several liability for a deceased spouse’s tax liabilities on death.

Ms. Kuchta was married to Mr. Juba (the “Deceased”) at the time of his death in 2007. Ms. Kuchta was the designated beneficiary of two of the Deceased’s RRSPs, and she accordingly received $305,657.00 upon the Deceased’s death. The Deceased was assessed by the Minister of National Revenue (the “Minister”) and found to owe $55,592.00 in respect of his 2006 taxation year. After the Deceased’s Estate failed to pay that amount, the Minister assessed Ms. Kuchta for the amount owing, pursuant to s. 160(1) of the ITA. This section provides that where a person has transferred property to their spouse, the transferee and transferor are jointly and severally liable to pay the transferor’s tax.

Ms. Kuchta’s position was that, three of the four requirements of s. 160(1) were met, but that the last requirement had not been met. Ms. Kuchta stated that she was not the Deceased’s spouse at the time of transfer of the RRSPs, as it occurred immediately after the Deceased’s death, at which point their marriage had ended. The Court, therefore, had to consider (a) when should the relationship between Ms. Kuchta and the Deceased be determined; and (b) does the word ‘spouse’ in s. 160(1) include a person who was, immediately before a tax debtor’s death, his or her spouse?

With respect to issue (a), if the relationship is determined at the time that Ms. Kuchta was designated as beneficiary of the RRSP, they would have been married, whereas if the relationship were determined at the time of transfer, they would not have been married. The Court easily concluded that the relationship should be determined at the time of transfer. It then had to determine whether the word “spouse” in s. 160(1) is sufficiently broad to include Ms. Kuchta at the time of transfer. That is, whether it included widows and widowers.

The Court undertook a “textual, contextual and purposive analysis of the word ‘spouse’ in subsection 160(1).” After a lengthy and thorough analysis, the Court concluded that the word ‘spouse’ must have been intended to include widows and widowers. It found that Parliament used both the legal and colloquial meanings of the term in the ITA, which differ from each other, thus presenting conflicting interpretations and ambiguity. However, the purposive analysis was found to point to an interpretation that includes widows and widowers.

Ultimately, therefore, Ms. Kuchta was found jointly and severally liable for the Deceased’s unpaid taxes, as a result of the beneficiary designation of the Deceased’s RRSPs. It will be interesting to see how this case applies going forward, and we should keep in mind that the Minister may be able to collect on unpaid taxes from the beneficiary of a Deceased’s RRSP.

Thanks for reading.

Ian Hull