What’s Mine is Yours, Including the Tax Bill

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Section 160 of the Income Tax Act is probably one of the most, if not the most, dangerous collection tools available to the CRA.  If a taxpayer transfers property to his or her spouse, or anyone with whom he or she does not deal at arm’s length at a time when he or she has a tax liability and the transferee does not pay fair market value consideration for the property; the transferee can be liable for some or all of that outstanding tax liability.

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The transferee’s liability does not depend upon knowledge or intention.  He or she may have no idea that I owe taxes.  For that matter, I may have no idea.  If I transfer a property to my son today, and three years from now the CRA assesses me in respect of 2015 and establishes that there was a liability outstanding, section 160 will fix liability on my son, even though the transfer was in good faith and, to our knowledge, there was no tax liability at the time. 

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There is also authority for assessing the beneficiaries of an estate who receive a bequest, if the deceased had tax liabilities outstanding.

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If a company pays a dividend when it has a tax liability, the shareholder receiving the dividend can be liable for some or all of that tax liability

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We often see taxpayers hurriedly transferring property, frequently the family home, to their spouse in order to avoid a big tax liability.  Not only is this ineffective to protect assets, but it will also spread the tax liability to the spouse.

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Clearly, in any contemplated transfer of property, both the transferor and the transferee must have good advice and information.  We can help you ensure that any transfer of property will not also transfer a tax liability.