CRA finds that a “legal representative” of a taxpayer has potential personal liability for the maximum value of the property under its control from the moment that the taxpayer’s tax debt was assessed

A trust, whose sole individual beneficiary has an unpaid tax liability for 2014 of $150,000 (which was assessed on April 30, 2015), holds a portfolio with a fair market value of $125,000 on December 31, 2014 and (due solely to market declines) of $100,000 on April 30, 2015 and of $70,000 on January 1, 2016, being the date when the sole trustee (viewed for s. 159 purposes as the beneficiary’s ”legal representative”) receives a demand for payment.

CRA appears to consider that the trustee can be assessed for $30,000 under s. 159(3), being the deficiency between the $70,000 that was used (following the sale of all the trust property) to satisfy the payment demand, and the maximum value of the property under the control of the trustee after “the taxpayer’s liability arose on April 30, 2015.” This position is unfavourable in that it treats a legal representative as being personally liable for failing to immediately liquidate a portfolio (which is subject to market fluctuations) in respect of tax debts of which it may have no knowledge even though doing so may breach fiduciary or other obligations, and favourable in that it treats a tax liability as not arising for s. 159 purposes until it is assessed. If you are a legal representative, be careful about holding anything other than cash!

Neal Armstrong. Summary of 14 September 2016 External T.I. 2016-0638171E5 under s. 159(3).