Family matters, but whom does it include? The Tax Court of Canada (“TCC”) and the Canada Revenue Agency (“CRA”) recently separately considered questions along this line of inquiry.
In Kutchka v. The Queen, 2015 TCC 289, the TCC was asked to determine whether the widow of a deceased taxpayer should be considered his “spouse” for the purposes of subsection 160(1) of the Income Tax Act. Paragraph 160(1)(a) makes a transferee of property jointly and severally liable for a portion of the transferor’s taxes, where the transferee is the spouse of the transferor.
The taxpayer in this case was the late Matthew Juba, who was married to Mary Kutcha. Mr. Juba died in 2007. At the time of her husband’s death, Ms. Kuchta was the sole designated beneficiary of Mr. Juba’s two RRSPs and ultimately received $305,657 as the beneficiary. Mr. Juba was later assessed taxes of $55,592 for his 2006 taxation year. (These taxes did not arise as a result of the RRSP transfer to Ms. Kutcha, which occurred following Mr. Juba’s death in 2007). When Mr. Juba’s estate failed to pay these taxes, the Minister of National Revenue assessed Ms. Kutcha for the same amount pursuant to subsection 160(1).
Ms. Kutcha appealed the assessment. She argued that subsection 160(1) was only applicable to her if she qualified as the “spouse” of Mr. Juba at the time the transfer occurred. Because Mr. Juba was deceased at the time of the RRSP transfer, Ms. Kutcha argued that she was not at that time married to Mr. Juba. In response, the MNR submitted that “spouse” in the context of subsection 160(1) should be interpreted to include a person who was, immediately before the transferor’s death, his or her spouse.
The Court agreed with the MNR’s position. In arriving at this conclusion, it noted that:
- Although dictionary definitions of the word spouse clearly define it as a relationship between two living people, colloquially it is frequently used to refer to the surviving member of a married couple, particularly shortly following the first spouse’s death.
- The Income Tax Act is ambiguous regarding the meaning of “spouse”. In some provisions, the relationship is clearly limited to living people. In others, including subsection 70(6), the term includes surviving spouses.
- It is unlikely that Parliament would have intended to exclude transfers on death between the deceased taxpayer and the taxpayer’s widow or widower.
In a recent CRA technical interpretation, the CRA was asked whether step-brothers are considered to be related for purposes of the Income Tax Act. The CRA replied in the affirmative. In the particular example, two common law spouses had sons from previous relationships. The CRA relied on paragraph 252(1)(c) in concluding that the step-brothers were related. This provision deems the child of a common-law partner of a taxpayer to be a child of the taxpayer, and would therefore deem the step-brothers to be children of (some) common parents.
(Defining) Family sure can be complicated!