A father designated his two daughters as beneficiaries of his RRSP. On his death, each daughter received half the RRSP. CRA assessed each daughter for the full amount of the father’s tax debt existing at the time of his death.
The daughters relied on Kiperchuk v. The Queen, 2013 TCC 60 (Lamarre) which held that section 160 could not apply to a transfer to the deceased’s wife of an interest in an RRSP on his death. Kiperchuk relied in turn on a common-law rule that marriage ends on death, as discussed in Re Kindl, 1982 CanLII 2049 (ON SC).
Justice D’Arcy accepted Kiperchuk’s reasoning but distinguished it on the basis that marriage is a legal status while the relationship of child and parent is a “factual” one.
Obviously, both relationships are factual. To establish marriage, you must give evidence of the event. The parent-child relationship is also proved with evidence. (Relying on Justice D’Arcy’s distinction might also create confusion for adopted children, as that relationship is a legal one not a “factual” one based on genetic ties.)
(The principle that marriage ends on death seems to be a common-law one not statutory. There is no clear statement of it in the Federal Divorce Act or Ontario’s Marriage Act, Succession Law Reform Act, Declarations of Death Act, or the Family Law Act.)
There doesn’t seem to be, though, any common law statement that the child-parent relationship ends on death. And there’s not a reason to have that kind of rule. By contrast, it is important to have marriages end on death so that the widow or widower can remarry legally.
As a matter of policy, there doesn’t seem to be any good reason to enforce this kind of distinction for income tax purposes. Why should a different result apply for spouses from the result for children? Also, it’s not clear why section 160, being intended, as Justice Boyle recently emphasized, to prevent defrauding Canada, should apply to an event that can only occur with the death of the tax debtor. Not many try or plan to avoid tax debts by suicide, especially with bankruptcy readily available.
(For Justice Boyle’s statement, see Muir v. The Queen, 2020 TCC 8 especially at para. 22:
“[22] While the Federal Court of Appeal summary of the four section 160 requirements in Livingston are broadly worded, they were written in reasons that make it clear that the arrangements to transfer the money in that case were put into place by the transferee of the money to assist the transferor to have the opportunity to keep them out of creditors’ reach including CRA.”)
Justice Graham recognized the policy problem of treating spousal differently from other non-arms length relationships for purposes of s. 160, given that many other rules in the Income Tax Act assume that spouses continue to have the relationship for tax purposes even after death, including the rules for rollovers of RRSP’s. See Kuchta v. The Queen, 2015 TCC 289 esp. at paras. 67, 75 and 78. (That decision may be technically void because Justice Graham made the decision in place of Justice Jorre who heard the case. See: High-Crest, 2017 FCA 88; Birchcliff Energy, 2017 FCA 89. But the reasoning might still be respected.)