CRA Tax Debt and the Matrimonial Home in Ontario: Your Rights

Learning that your spouse owes money to the Canada Revenue Agency is stressful, especially when the family home is the main asset. You may worry that the home can be seized, that you will end up paying a debt you did not create, or that your own share in a separation will shrink.

This article explains in general terms how CRA can reach property, what rights a spouse has in a matrimonial home, and why the debt matters when property is divided. Every situation turns on how title is held, when the debt arose and what the spouses have agreed, so use this as a map and not as advice.

How CRA can reach property to collect a debt

When an amount is unpaid, the Minister of National Revenue may certify it and register it in the Federal Court. Once registered, it has the same effect as a judgment of that court.

A document can then be registered to create a charge, lien or priority on the debtor's property, in the same manner as a provincial court judgment. In plain words, a lien is a claim against property that has to be dealt with before the property is cleanly sold or refinanced. If the property is to be sold, the Minister's written consent is required.

Whether a lien attaches to the whole home or only to the debtor's interest, and how it ranks against other claims, depends on how title is held and what was registered when. A lawyer can check the title search.

Your rights as a spouse in the matrimonial home

Married spouses have special protections for the family home. Ontario guidance says the family home must be divided equally unless the spouses agree to a different split, and that a home that was gifted or inherited does not count as excluded property.

There are also rules about dealing with the home on title. A transfer or mortgage of a matrimonial home requires a spousal statement, such as a statement that the person consenting is the spouse, or a statement that the spouse has released rights by separation agreement. Otherwise a court order is needed.

One spouse alone can designate a property as a matrimonial home on title. The designation stays on the parcel register until the registering spouse removes it, and one designation does not release other properties from being matrimonial homes.

These protections have limits. In one Court of Appeal case, a spouse who tried to set aside a mortgage failed because he did not prove that the lender knew, or should have known, that the borrower's partner was a spouse and that the property was a matrimonial home. If you co-own the home, the Court of Appeal has also confirmed that a half-owner is entitled to one-half of the net sale proceeds, less any unpaid share of upkeep costs.

• Check whether your name is on title, and how (the way co-owners hold title can matter).
• Find out whether a spousal statement was given on any recent mortgage or transfer.
• Ask whether a matrimonial home designation is registered on the property.

Transfers to a spouse can pass the tax debt along

People sometimes move a home into the other spouse's name hoping to protect it from a tax debt. This can backfire. Where a person transfers property to a spouse or common-law partner, the transferee and transferor are jointly and severally liable under the Income Tax Act, up to the excess of the property's fair market value over the consideration given. The Minister may assess the person who received the property.

There is a relief provision for separating spouses. It relieves a spouse from that liability for a transfer made under a court order or a written separation agreement while the spouses were living separate and apart because of a relationship breakdown, but only if the listed conditions are met.

How the debt can affect equalization

Married spouses generally split property acquired during the marriage equally when it ends, and the spouse with the smaller share is owed an equalization payment. A large tax debt can change the numbers, but exactly how a particular debt is counted depends on the facts, including when it arose and whether it relates to property or income from the marriage. This is worth confirming with a lawyer or accountant.

Two other points matter. First, trust claims, such as a claim that you contributed to property held in your spouse's name, may be advanced before equalization is calculated. Second, spouses can vary the default rules by a domestic contract such as a separation agreement. How an agreement should deal with a tax debt and the home depends on your situation, so it is worth confirming with a lawyer.

What to do next

• Get a current title search for the home and any other property to see what is registered.
• Gather CRA notices, assessments and correspondence, and note the dates.
• Do not transfer the home to your spouse before getting advice, because transfers between spouses can create joint liability for a tax debt.
• Ask a lawyer whether a separation agreement or court order could fit the conditions for relief.
• Ask an accountant about the amount and cause of the debt, since this affects how it is treated in a settlement.
• Keep records of who paid the mortgage, taxes and repairs, in case a trust or contribution claim is relevant.

The right steps depend on the size of the debt, how title is held and where you are in the separation. A lawyer can review your documents and explain your options.

Frequently asked questions