RSPs are explicitly excluded from the bankrupt's property divisible among creditors in bankruptcy. (See paragraph 67(1)(b.3) of the BIA.) So, after the bankruptcy, Ms. Martin still owned her RSPs. In this case, the Tax Court Judge ruled that CRA's secured debt was not discharged by the bankruptcy, so CRA could enforce its lien against her RSP.
On the basis that the RSP funds were effectively paid to Ms. Martin by allowing her to discharge part of her tax debt, the amount withdrawn was includable in her income in the years CRA removed it, so she had to pay a tax on that amount too. (See ITA s. 56(1)(h) and s. 146(8).)
CRA's success in this case offers it a way to collect tax debts after taxpayer bankruptcies where there is a large tax debt owing and available RSPs or RIFs. So, in the future, taxpayers should consider the continuing risk to their RSPs if they declare bankruptcy after CRA registers a lien against their assets.
See Martin c. La Reine 2015 CCI 118 (D'Auray)