CRA - seizure of death proceeds for tax liability

Under the Act, the CRA can seize funds or other property that was transferred by a tax debtor to a non-arm’s length party. The transferee becomes jointly and severally liable for the tax debt, but liability is limited to the FMV of the property transferred less any consideration paid by the transferee. In order for these rules to apply there must be a transfer of property from the deceased. When a death benefit is paid from an insurance company to a named beneficiary, there is no transfer of property from the deceased so there is a strong argument that the CRA will not be able to seize the proceeds to pay the deceased’s tax liability. There is however no such protection where the estate is beneficiary of the insurance. There is also no protection from these rules in the case of beneficiaries designated under an RRSP or RRIF, since in that case there is a transfer of property from the deceased to the beneficiaries.

With respect to whether a death benefit paid on a segregated fund policy would be subject to section 160, CRA stated at the 2022 CALU Roundtable that the determination would be made on a case-by-case basis due to so many unique financial products and various legislation governing segregated funds.e to so many unique financial products and various legislation governing segregated funds.