Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Principal Issues: Whether a transferee is liable to pay if the transferor is yet to be assessed.
Position: Yes.
Reasons: The liability is created by the operation of the Act; the transfer of the property triggers the liability.
January 9, 2009
EDMONTON TSO HEADQUARTERS
Revenue Collections Section Income Tax Rulings
Directorate
Attention: Carol Pawlenchuk Lindsay Frank
(613) 948-2227
2008-030031
When Does Liability under Section 160 of the Income Tax Act Arise
This is in reply to an email from your Brenda Chow, who is seeking assistance in raising an assessment pursuant to section 160 of the Income Tax Act ("the Act").
On February 29, 2008, the Minister assessed the sole shareholder of a corporation under section 160 of the Act after the corporation paid him the following dividends:
Taxation Year Amount
March 31, 2005 $XXXXXXXXXX
March 31, 2006 $XXXXXXXXXX
March 31, 2007 $XXXXXXXXXX
On November 20, 2007, prior to being assessed, the shareholder transferred to his spouse his half-interest in the property that he had jointly owned with her. At issue, is whether the Minister could assess the spouse, considering, that at the time of the transfer, the husband had not been assessed for any amount.
Section 160 of the Act imposes liability on a transferee when a transferor transfers property to that person. When this is the case, the transferor and the transferee are jointly and severally liable, pursuant to paragraph 160(1)(e). The liability is equal to the lesser of the difference between the fair market value of the property transferred and the consideration given for the property, and the transferor's liability for the taxation year in which the property was transferred, or any preceding taxation year. The foregoing principles are governed by subparagraphs 160(1)(e)(i) and (ii).
Critical to answering the question is the determination of when the liability of the transferor arose. An assessment does not create a tax liability but at most is a confirmation of its existence. The tax liability is created by the taxpayer's taxable income and the operation of the Act: The Queen v. Simard-Beaudry, 71 D.T.C. 5511 (F.C.T.D.). For the purposes of an assessment under section 160 of the Act, it is necessary to know what event triggers the liability. This was the issue in Ingrao v. M.N.R., 89 D.T.C. 42 (T.C.C.), where it was argued that the transferor owed nothing under subparagraph 160(1)(e)(ii), as no liability had been assessed against the transferor at the time. The Court was not persuaded that,
"... subparagraph 160(1)(e)(ii) looks to liability to pay on the date of assessment. The statute as reworded clearly discloses a legislative intent to impose liability on the transferee in respect of the year in which the transfer takes place. The time when the assessment happens to take place is a consideration irrelevant to the statutory scheme. It is the transfer that triggers the liability" [emphasis added].
In the case to which Ms. Chow is referring, there were two distinct transactions involving transfers of different properties. The first transaction involved multiple transfers which occurred in 2005, 2006, and 2007, when the company paid the dividends to the transferee shareholder. The second transaction occurred on November 20, 2007, when the transferee transferred his interest in the matrimonial home to his wife.
Accordingly, it is open to the Minister to assess the spouse now in respect of the latter transfer, even though the transferor had not yet been assessed. The spouse's liability would be the lesser of (a) the amount owing by the transferor, and (b) the difference between the fair market value of the property transferred and the consideration given for the property.
Trusting you find this satisfactory,
B. J. Skulski
Manager
Insolvency and Administrative Law Section
Business and Partnerships Division
Income Tax Rulings Directorate
c.c. Brenda Chow
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