Aitchison Professional Corporation – Tax Court of Canada finds that s. 160 does not catch the transfer of valuable services to a non-arm’s length person

At a time that a lawyer (“James”) owed $2.1 million in taxes, he transferred his law practice to a professional corporation and thereafter worked for it as an unpaid volunteer or employee. His two daughters (also lawyers) worked for the corporation at market salaries and in the first three years received over $1 million in dividends as a result of “an improbable share structure and a complete disregard for dividend rights.”

In finding that James had not transferred “property” to the corporation for s. 160 purposes by virtue of choosing not to negotiate a salary for his valuable professional services, Graham J stated:

The right to negotiate is a right that everyone possesses and that is enforceable against no one. It is not “property”. If an employee negotiates a poor contract, the potential salary that he or she leaves on the table is not “property” that he or she has transferred to his or her employer. It is simply a lost opportunity.

He added:

This case demonstrates that there is clearly a gap in section 160 … [but s]imply amending section 160 to cause it to cover the non-arm’s length provision of services may have undesired consequences. …

If a tax debtor spent all of his or her free time caring for his or her aging parents, would the Minister assess the parents for the fair market value of that care?

Neal Armstrong. Summary of Aitchison Professional Corporation v. The Queen, 2018 TCC 131 under s. 160(1).