Effect of Provincial Legislation on ITA Liability

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Effect of Provincial Legislation on Tax Liability under the ITA 

Murphy Estate v The Queen, 2015 TCC 8

The Appellant relied on a provision in the Nova Scotia Matrimonial Property Act, RSNS 1989, c 275, arguing that it had retrospective effect and affected the timing of the vesting of property. At issue was whether the concept order granted on the basis of provincial legislation had retrospective effect to change the timing of vesting of property for ITA purposes.


Mr Murphy died unexpectedly and intestate.  The heirs, including his surviving spouse differed on the division of his assets well past when the terminal return was filed.

The CRA, on the basis of the return filed, assesses significant amounts of tax.  After this assessment, the heirs obtained a consent order from the provincial court and refiled the terminal return on the basis of that order having retrospective effect (relying on the refund of premiums provisions applicable to RRSPs).  The MNR did not agree to reduce the tax payable on the basis of the order.


Generally, where a taxpayer dies, s/he is deemed to have received the proceeds of any RRSP plan immediately before death and that this is included in income (ITA 146(8), *.), and 56(1)(h)).  But, where certain beneficiaries are paid those proceeds they qualify as a “refund of premiums” and not included in the deceased’s income (ITA 146(1)).

The taxpayer relied on  the decision in Hillis v R, [1983] CTC 348 (FCA) to argue that provincial legislation can be relied on to ascertain property rights and timing of vesting of those rights.   The TCC did not agree as, unlike in Hillis, the designated beneficiaries (the children) did not disclaim their rights. The express wording in the consent order suggested that the children had accepted their rights and were then transferring those interests (para 31).

The TCC referred to the decision in Re Metcalfe, [1972] 3 OR 598 (OHCJ) where it was said that a disclaimer operates from the time of the deceased’s death and makes gifts void for certain purposes ab initio. The TCC , at paragraph 33, stated:

[33]        A disclaimer is a refusal to accept an interest which has been bequeathed to a disclaiming party. The effect is to void the gift as if the disclaiming party never received it. The gift becomes part of the estate of the deceased and the disclaiming party has no right to direct who is to receive the gift. See Plaxton v Minister of National Revenue, 1959 CarswellNat 253 (TAB). In this respect, the Consent Order cannot be a disclaimer as the Murphy Children directed that the RRSP in question was to be transferred to Ms. DeMarsh.

The taxpayer also argued that this case was similar to rectification, referring to the FCA decision in Dale v Canada [1997] 3 FC 235, summarized in Bayliss v R, 2007 TCC 387 – an order of a superior court is not subject to collateral attack, and when operating retroactively that order changes history. The TCC did not directly address this argument.

The Court held that there was no disclaimer and that the proceeds of the RRSP vested in the designated beneficiaries, and the proceeds of the RRSP were properly included in the deceased’s income for the terminal year.

– Sas Ansari, JD LLM PhD (exp)

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