When a taxpayer transfers assets to a spouse, a minor or a non-arm’s-length person (“the transferee”), subsection 160(1) of the Income Tax Act allows the CRA effectively to collect the taxpayer’s debt from the transferee even if the transfer was not made with the intent of avoiding the payment of a tax liability. The amount of tax assessed to the transferee cannot exceed the fair market value of the transferred property and is reduced by the fair market value of any consideration paid for the property. The CRA can also assess interest on the 160(1) liability in respect of assessments made after December 20, 2002.
The transfer need not be made with the intention of avoiding a tax liability. For example, the provision could apply when a parent gifts money or property to a child in a good faith transaction or when assets are transferred on the death of a taxpayer to non-arm’s length persons or to minors.
The CRA can attempt to collect from the transferee the transferor’s tax liability arising in respect of the year of the transfer or any preceding year. The liability can arise even if the transfer took place prior to the event that created the tax liability. For example, a child could be assessed if he or she received a gift at the beginning of a calendar year, even if the actions creating the transferor’s tax liability did not arise until later in the year. Similarly, a child who inherits assets could be assessed if the deceased parent, owed or is subsequently assessed, income tax for a prior year. If the parent’s prior years are not statute barred, the look back period is indefinite.
It appears that assets owned as a result of the death of a joint tenant are not caught by these rules, as there is no legal transfer of property from the deceased joint tenant to the surviving joint tenant on death.
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