Income Tax Act Subsection 160 (http://laws-lois.justice.gc.ca/eng/acts/I-3.3/section-160.html)
Excise Tax Act Subsection 325 (http://laws-lois.justice.gc.ca/eng/acts/E-15/section-325.html)
Subsection 160 and subsection 325 assessments are the most powerful collection tools that the Canada Revenue Agency (“CRA”) has in their bag.
If someone has a tax debt, and that person transfers money, or other property, directly or indirectly to:
- Their spouse, common-law partner;
- A person under 18 years of age; or
- A person with whom they are not dealing at arm’s length
Then the CRA will go after the person in receipt of the transfer.
The CRA can, and will, assess the person who received the transfer the lesser of the tax debt owed by the person making the transfer, or the fair market value of the property that was transferred. If the person receiving the property paid an amount for it, then that goes against the amount that the CRA can assess.
The usual scenario where this applies is as follows:
- Taxpayer receives an audit letter for 2013 and 2014;
- Taxpayer transfers interest in home to spouse during audit as he or she is afraid of the result;
- The audit concludes and the taxpayer owes a significant sum;
- Taxpayer cannot pay the amount in full;
- CRA assesses the spouse for the value of the transfer (i.e. the interest they received in the home.
The above scenario occurs almost on a daily basis. When the CRA assesses a taxpayer for previous years, the debt is deemed to have arisen when that tax return was due. So the audit mentioned above would mean that the taxpayer would owe funds from the time the 2013 and 2014 tax returns were due (April 30, 2014, and April 30, 2015).
Another typical scenario is when a spouse is depositing funds into their husband or wife’s bank account. If the spouse had a tax debt at the time, CRA can, and will go after the husband or wife under these subsections.
The reason for the assessments is simple. It is the CRAs position that the tax debtor should have sold whatever was transferred, and sent those funds to lower the debt.
If you are planning on transferring any property, or you have been transferred property and you are concerned about being assessed by the CRA, please seek legal assistance immediately.
Gagnon v. The Queen 2010 TCC 482 – Transfer of the husband’s half of the family home
Hennig v. The Queen 2012 TCC 141 – Payment of dividends from a corporation
Kiperchuk v The Queen, 2013 TCC 60 – What is a “Transfer”? Are separated but not divorced spouses dealing at arm’s length?
More detailed case law analysis may be found here: http://ita-annotated.ca/RecentDecisions/category/x-ita-section/1601/
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