http://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/item/100497/index.do 
Murphy Estate v. The Queen (January 13, 2015 – 2015 TCC 8, V. Miller J.).
Précis: The late Mr. Murphy died unexpectedly on February 15, 2009. He was survived by his widow, Ms. DeMarch, and three grown children from his first marriage. Mr. Murphy died intestate however he left one large RRSP which he had designated in favour of his grown children (the “Subject RRSP”). Ms. DeMarch commenced litigation which was resolved by means of a Consent Order of the Supreme Court of Nova Scotia which provided that the Subject RRSP and one other were to be transferred to an RRSP for Ms. DeMarch. The Estate (which had already filed a return including the RRSPs in Mr. Murphy’s terminal return) filed a T1 Adjustment Request to show the rollover of the funds to Ms. DeMarch’s RRSP. The Minister did not allow the adjustment and the Estate appealed to the Tax Court. The Tax Court declined to treat the Consent Order as a rectification of the RRSP designation and dismissed the Estate’s appeal.
Decision: This is a confusing decision with a seemingly harsh result. The late Mr. Murphy died unexpectedly on February 15, 2009. He was survived by his widow, Ms. DeMarch, and three grown children from his first marriage. Mr. Murphy died intestate however he left one large RRSP which he had designated in favour of his grown children (the “Subject RRSP”):
[6] At the time of his death, Mr. Murphy held many assets including the matrimonial home, farm property, forest properties, rental properties, cottages, livestock and three Registered Retirement Savings Plans (“RRSPs”). One of his RRSPs had a fair market value of $237,026 and the Murphy Children were designated as the beneficiaries under this plan. On February 15, 2009, this RRSP had not matured. This RRSP had account number 552-69883 with CIBC Wood Gundy and it is the subject of this appeal. I will refer to it as the subject RRSP.
The relations between the beneficiaries soon began to fray but ultimately a settlement was reached:
[9] On April 30, 2010 an agreement was reached between Ms. DeMarsh, the Personal Representatives and the Murphy Children whereby Ms. DeMarsh released any claims against a cottage property in return for one of the RRSPs in the amount of $160,000 being transferred to her. This was the only agreement between the heirs prior to filing Mr. Murphy’s terminal return.
[10] Mr. Murphy’s terminal return was filed on April 30, 2010 and was assessed by notice dated May 20, 2010. In this return, Mr. Murphy reported RRSP income in the amount of $256,829 which amount included the subject RRSP.
[11] On September 20, 2010, Ms. DeMarsh filed an application in the Supreme Court of Nova Scotia pursuant to section 12 of the
Matrimonial Property Act, R.S.N.S. 1989 c. 275. In this application, she named the Estate of John Arthur Murphy as the Respondent and she requested an Order for the division of matrimonial assets.
[12] After negotiations, the Appellant, Ms. DeMarsh and the Murphy Children entered into a Settlement Agreement effective December 31, 2010 whereby they agreed to divide and settle the matrimonial assets in the Appellant. According to the Settlement Agreement, the proceeds of two RRSPs would be transferred to a RRSP in which Ms. DeMarsh was the annuitant. If the Canada Revenue Agency (“CRA”) accepted this transfer to be a spousal rollover and refunded the taxes which had been paid by the Appellant, Ms. DeMarsh would receive the refund of taxes. The Settlement Agreement included the following:
1. The Children are the designated beneficiaries of two (2) Registered Retirement Savings Plans held at the time of this Agreement with CIBC Wood Gundy and bearing Account No. 552-69883, and having at that date of death a value of $237,026.00 and No. 552-72469, having at the date of death a value of $155,210.00. The Children covenant and agree in their personal capacity and with respect to Michael Bernard Murphy and Lindsay Alexa Murphy, also in their capacities as two of the Personal Representatives of the Estate, to take all actions and to sign all documents, including but not restricted to a Consent Order in the Matrimonial Property Act Application, necessary to effect a transfer of the balance of both of the aforesaid RRSPs to a Registered Retirement Savings Plan (“RRSP”) under which Barbara is the annuitant, in order to effect such transfer in a tax deferred manner. The documents will include, without limitation, the documents annexed hereto as Schedule “A”.
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3. The Parties jointly hereby convenant and agree to take all actions necessary to cause the Supreme Court of Nova Scotia to issue a Consent Order in Application 2010 ANT. NO. 336426, an Application brought by Barbara DeMarsh against the Estate of John Arther (sic) Murphy which order is in, or will be substantially in, the form annexed hereto as Schedule “B” (the “Order”).
The settlement was implemented by means of a Consent Order issued by the Supreme Court of Nova Scotia on May 13, 2011. The Subject RRSP funds were then transferred to an RRSP for Ms. DeMarsh and a T1 Adjustment Request was filed by the Estate on the basis that the Subject RRSP had been rolled over to Ms. DeMarsh. The Minister declined to accept the request:
[14] The Murphy Children signed the documents to release, convey and transfer their interests in the RRSP and the proceeds from the subject RRSP were transferred out of that account on April 26, 2011 and into a RRSP account in which Ms. DeMarsh was the annuitant.
[15] On August 10, 2011, a T1 adjustment was requested for Mr. Murphy’s 2009 taxation year reducing the amount of RRSP income by $237,026. The explanation given for the adjustment was that the court order of May 13, 2011 acknowledged that all RRSPs owned by Mr. Murphy were rolled over to his surviving spouse Ms. DeMarsh.
[16] The Minister of National Revenue (the “Minister”) did not agree to reduce the RRSP income which had previously been reported by Mr. Murphy but his 2009 taxation year was reassessed for other reasons which have not been appealed.
Counsel for the taxpayer argued that the situation was analogous to a rectification or a disclaimer of the interests of the Murphy children in the Subject RRSP. Justice Valerie Miller rejected these arguments completely:
[29] The Consent Order did not purport to change the beneficiaries to the RRSP in question. The Consent Order was not a rectification order nor was it intended to be a rectification order. It was an order in which the parties agreed to settle the Estate of John Arthur Murphy. The wording of the order makes it clear that Ms. DeMarsh released all claims which she had to real and personal property held by the Appellant. In exchange, the Murphy Children released, conveyed and transferred their interests in the subject RRSP to Ms. DeMarsh.
[30] The Federal Court of Appeal’s decision in Hillis does not help the Appellant. In Hillis, the deceased died intestate leaving his widow and two sons as heirs. The two sons disclaimed their interests and the widow applied under the Dependants’ Relief Act of Saskatchewan to obtain the entire estate. The entire estate was granted to her. Income tax returns were filed in which a rollover was claimed under subsection 70(6) of the Act. The Minister denied that there was a rollover on the grounds that the conditions of subsection 70(6) had not been met. However, the Federal Court of Appeal found that the property had vested indefeasibly in the widow by virtue of the provincial court order but the vesting had occurred as of the date of the provincial court order.
[31] Unlike the factual situation in Hillis, the designated beneficiaries in the present case did not disclaim their rights to the RRSP in question. Paragraph 2 of the Consent Order states that “the Murphys agree to sign all required documents to release, convey and transfer to and in favor of the Applicant any and all interests that they may have in registered retirement savings plans of their father…” [my emphasis added]. This wording suggests to me that the Murphy Children assigned their interests in the RRSP. I interpret this wording to mean that they accepted the gift of the proceeds of the RRSP and then after negotiation and settlement, they consented to transfer all of their interests to Ms. DeMarsh. This is not a disclaimer but an assignment.
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[34] It is my view that at the time of Mr. Murphy’s death, the subject RRSP devolved directly to the Murphy Children who were the designated beneficiaries. They did not disclaim their interest in the RRSP but assigned their interest to Ms. DeMarsh by way of the Consent Order. The Consent Order was not a rectification order.
[35] I have concluded that the reassessment in this matter is correct. According to subsection 146(8.8) of the Act, Mr. Murphy was deemed to have received the proceeds of the RRSP immediately before his death and those proceeds were correctly included in his income in accordance with paragraph 56(1)(h). The facts in this case do not support the conclusion that there was a “refund of premiums” which could be rolled over to a RRSP by Ms. DeMarsh.
As a result the appeal was dismissed with costs.
Comment: This decision is puzzling on a number of levels. In the first place there is no discussion of what ultimately happened to the two other RRSPs transferred to Ms. DeMarsh under the Settlement Agreement. From the decision it appears that the three RRSPs were:
CIBC Wood Gundy 552-69883 – $237,026 – the Subject RRSP
CIBC Wood Gundy 552-72469 – $155,210.00 – “72469 RRSP” [Perhaps this represents the $160,000 RRSP referred to in paragarph [9] of the decision.]
League Savings and Mortgage 31874-5 – the value is not mentioned in the decision but perhaps this represents the difference between the RRSP income in the amount of $256,829 reported in the terminal return [para. [10] of decision] and the $237,026 value of the Subject RRSP, i.e., about $20,000. “LSM RRSP”
From paragraph 1 of the Minutes of Settlement it appears that the Murphy children were designated beneficiaries of both the Subject RRSP and the 72469 RRSP. The decision is silent on the designation, if any, of the LSM RRSP.
Unfortunately the lack of information on the other two RRSPs in the decision forces one to speculate. The 72469 RRSP and the LSM RRSP do not appear to have been taxed in the Estate otherwise one would assume that they would also have been the subject of an appeal. There is however one rather opaque statement in the decision which could possibly suggest that they were taxed in the Estate:
[16] The Minister of National Revenue (the “Minister”) did not agree to reduce the RRSP income which had previously been reported by Mr. Murphy but his 2009 taxation year was reassessed for other reasons which have not been appealed.
The natural inference however is to conclude that the Minister recognized the rollover to Ms. DeMarsh under the Consent Order. If that was indeed what happened it would tend to undercut the reasoning of the decision since the Consent Order, to that extent, would have operated retroactively to the date of Mr. Murphy’s death. Moreover the Murphy children would have had an interest in the 72469 RRSP as designated beneficiaries and the LSM RRSP as beneficiaries of the Estate. Can their execution of the settlement be said to act as a disclaimer to two RRSPs and not the other one?
The Consent Order was designed to effect a tax free rollover of all three RRSPs to Ms. DeMarsh; that appears quite clearly from the Settlement Agreement which is incorporated by reference in the Consent Order. If the Murphy children wanted to simply convey their rights to the Subject RRSP to Ms. DeMarsh that would not have required a Consent Order – they could have done it directly. There seems no doubt that the Nova Scotia Supreme Court knew precisely what it was doing in attempting to ameliorate the tax position of the Estate brought on by Mr. Murphy’s sudden death and lack of tax planning.
At the end of the day it is difficult not to see this decision as a collateral attack on an order of a provincial superior court, something the Federal Court of Appeal ruled out almost 20 years ago in Dale v Canada, [1997] 3 FC 235. Perhaps the Estate should ask the Federal Court of Appeal to review this decision in light of Dale and considerable subsequent jurisprudence to the same effect.