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 law costs are recoverable in a non-arm's length transfer of property assessment.
Position: It depends on the situation.
Reasons: 1. The costs of registering a certificate are recoverable in the same way as they could have been, had they been included in the amount certified. Under the ITA, if the amount in subparagraph 160(1)(e)(ii) is less than the amount in subparagraph 160(1)(e)(i), such costs are recoverable. Under the ETA, if the amount in paragraph 325(1)(e) is less than the amount in paragraph 325(1)(d), such costs are recoverable.
October 19, 2009
Accounts Receivable Tax Programs Division HEADQUARTERS
Income Tax Rulings
Attention: Irene Rebizant, Manager Directorate
Field Support Section Lindsay Frank
(613) 948-2227
2009-033273
Law Costs and a Non-Arm's Length Transfer of Property Assessment
This is in reply to an email from Maggie Chow. At issue, is whether an amount of law costs is recoverable from a person assessed under section 160 of the Income Tax Act ("ITA") or section 325 of the Excise Tax Act ("ETA"), each of which deals with assessment on account of property transferred.
Under paragraph 160(1)(e) of the ITA, the transferor and the transferee are jointly and severally liable for any amount that the transferor must pay under the Act in the year of the transfer or any preceding taxation year. However, the transferee's liability is limited to the lesser of the two amounts described in subparagraphs (i) and (ii). Under subparagraph 160(1)(e)(i), the amount is the excess of the fair market value of the property transferred over the fair market value of the consideration given for the property. Under subparagraph 160(1)(e)(ii), the amount is the amount that the transferor is liable to pay in or in respect of the taxation year or any preceding taxation year.
Similarly, pursuant to section 325 of the ETA, the transferor and the transferee are liable for any amount payable by the transferor. The transferee's liability is limited to the lesser of the two amounts described in paragraphs 325(1)(d) and (e). Under paragraph 325(1)(d), the amount is the excess of the difference of the fair market value of the property transferred net of the consideration given for it, and any amount assessed for income tax. Pursuant to paragraph 325(1)(e), the transferee is liable to pay the amount for which the transferor is liable for the reporting period of the transferor and any preceding reporting period.
Where the amount payable by the transferor was certified and registered in the Federal Court, subsection 223(4) of the ITA and subsection 316(3) of the ETA provide that the costs of registration ("law costs") may be recovered. Law costs payable by the transferor may be included in the calculation of an assessment under paragraph 160(1)(e) or 325(1), provided the assessment is raised based on the amount stated in subparagraph 160(1)(e)(ii) or paragraph 325(1)(e).
If the amount in subparagraph 160(1)(e)(ii) of the ITA is less than the amount calculated in subparagraph 160(1)(e)(i), the amount associated with law costs is recoverable in a non-arm's length transfer of property assessment. Likewise, if the amount in paragraph 325(1)(e) of the ETA is less than the amount calculated in paragraph 325(1)(d), the amount related to law costs is recoverable in a non-arm's length transfer of property assessment.
Should you need clarification or additional information, please do not hesitate to call Lindsay Frank at the number provided above.
B.J. Skulski
Manager
Insolvency and Administrative Law Section
Business and Partnerships Division
Income Tax Rulings Directorate
c.c. Maggie Chow
Field Support Section
Accounts Receivable Tax Programs Division
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 2009
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 2009
Email this Content