The Implications of the Right of Survivorship on CRA Tax Liens

It has become increasingly common for Ontarians to accumulate tax debt. The Canada Revenue Agency (“CRA”) can secure a tax debt against a tax debtor’s interest in real property by registering a tax lien. When property is owned jointly and the tax debtor dies, the surviving joint tenant is left with some important questions: Does the CRA lien remain on the property? Am I now responsible for paying this lien?

SZK recently acted on a matter that answered these important questions. In a recent case before the Commercial List sitting in bankruptcy, Sean N. Zeitz and Jakob Bogacki helped a surviving joint tenant spouse retain full ownership of her property, free and clear of her late spouse’s CRA liens. It was successfully argued that, upon the tax debtor spouse’s death, the CRA liens registered against his interest did not attach to the surviving spouse’s now sole registered interest that resulted from the “right of survivorship”. In other words, the CRA liens could no longer remain registered and were ordered vested out.

The court confirmed that when the tax debtor died, his interest in the property passed to his surviving spouse not as a transfer “but an extinguishment of his rights to the property”. Since the deceased tax debtor had no remaining interest on which the CRA could attach its liens, the court was satisfied that “CRA no longer has any interest in the property”. As such, the property vested in the surviving spouse unencumbered by the CRA liens.

This decision is the first to articulate that when a tax debtor who owns property jointly dies, his/her interest in the property is extinguished by operation of law (the right of survivorship) such that CRA can no longer maintain its liens thereon.