To apply the spousal rollover as you describe correctly, you must make sure you have selected "Spouse" as the beneficiary of your account where you edit the account properties. In that case, you should see something like "ACCOUNT NON-REGISTERED rolled over to spouse" in the warnings column of the year of your death. The account is not taxed in the TIME MACHINE, and the balance and its cost-basis continue on as owned by your spouse. Otherwise, you will see this warning: "NON-REGISTERED ACCOUNT liquidated to Estate", indicating the account has been deemed disposed and taxed.
Even if the account is rolled over to the spouse, probate still applies unless the account is also held jointly with your spouse. So even though there is no tax, there may be probate fees to pay (depending on your province). The warnings column also gives you that information like this: "To probate xxx,xxx.xx. Fees: x,xxx.xx". I think this may be why you are thinking the account is taxed when it isn't.
To avoid probate on the account, it needs to be a Joint account (both in real life and the TIME MACHINE). Then you need to consider CRA attribution rules on Joint accounts. Please read p. 30 of the MoneyReady App eBook for details on setting up Joint accounts.