Colitto – Tax Court of Canada finds that a director’s s. 227.1 liability cannot flow through to a transferee under s. 160 unless the s. 227.1(2) claim procedures have first occurred
The taxpayer’s husband (Mr. Colitto) was acknowledged to be liable under s. 227.1 for the failure of his corporation to remit source deductions between February and August, 2008. On May 2, 2008, Mr. Colitto transferred real estate to the taxpayer (Ms. Colitto) for nominal consideration. In 2016, CRA assessed Ms. Colitto on the basis that Mr. Colitto’s s. 227.1 liability had flowed through to her under s. 160 (to the extent of the real estate value). At issue was whether, under s. 160(1)(e)(ii), such liability was an amount that the transferor of the real estate (Mr. Colitto) was liable to pay under the Act in “or in respect of the taxation year in which the property was transferred or any preceding taxation year.”
Visser J found that Mr. Colitto’s s. 227.1 liability did not arise until 2011, when the last precondition for its application was satisfied, i.e., the corporation’s source-deduction tax debt was executed and returned unsatisfied. Hence, “Mr. Colitto’s liability arose pursuant to section 227.1 … in his 2011 taxation year and was not in respect of his 2008 taxation year” – so that the condition in s. 160(1)(e)(ii) quoted above was not satisfied. Although the reasoning of Visser J thus was quite straightforward, he provided a detailed contextual discussion of ss. 227.1 and 160 and their interplay, given that he was disagreeing with four prior Tax Court decisions, which found that the s. 227.1 liability arises at the time of the failure of the corporation to remit rather than when the subsequent steps to collect that corporate liability have failed.
Neal Armstrong. Summary of Colitto v. The Queen, 2019 TCC 88 under s. 160(1)(e)(ii).