CRA Section 160: Liable for Their Taxes
Section 160 of the Income Tax Act and section 325 of the Excise Tax Act are often used by the Canada Revenue Agency to affix liability for tax to recipients of transfers from persons with tax debts. Accordingly, if someone transfers something of value to you, while they have a tax debt, per section 160 CRA has the authority to assess you for that debt.
Section 160 can be activated when a person with a tax debt makes a transfer of anything of value, at less than fair-market value. The transfer occurs directly or indirectly, to
- A spouse or common-law partner;
- An individual under 18 years of age; or
- A person with whom they are not dealing at arm’s length.
Section 160 assessments are not subject to a time limit, and the bankruptcy of the original tax debtor will not invalidate your section 160 assessment.
Transfer for Less than Fair-Market Value Consideration
As mentioned, for CRA to apply a section 160 or 325 assessment, the transfer must be for less than fair-market value. The transferee will be liable for the transferor’s tax debt up to the difference between fair-market value and the consideration exchanged. So, for example, if a husband transfers a $400,000 property to his wife for $20,000 and the tax debt is $100,000, CRA may assess the wife for $80,000.
Defending a Section 160 Assessment
A taxpayer can defend against a section 160 or 325 assessment by:
a) asserting that the transfer of property was at arm’s length; or
b) asserting that adequate consideration or fair-market value was paid for the property.
Also, an effort should be made to dispute the underlying tax liability and assessment(s) if possible. If the original tax debt of the transferor is successfully challenged by a Tax Lawyer, the related section 160/325 assessment will be impacted accordingly.
Section 160 applies regardless of the recipient’s knowledge of the original taxpayer’s tax debts. This means that even when a recipient is unaware that the original taxpayer owed taxes to the CRA, the recipient may still be liable to pay tax based on section 160. Obviously, if the original taxpayer did not owe taxes, then section 160 does not apply.
How to Fight a Section 160 Assessment
You must be able to to persuade a CRA appeals officer that the assessment is incorrect either wholly, or in part. There is a reverse onus in tax law so convincing the appeals officer is not a simple process. Again, you may even argue that the original assessment issued to the original tax debtor is wrong. This is a valuable tool if the original debt is outside the time limit to be fought. This can create an alternative option and allow those who missed their first chance a second to fight an assessment.
If CRA appeals decides that the assessment is valid, you may appeal their decision directly to the Tax Court of Canada.
SpenceDrake Tax Law