23 July 2010 Internal T.I. 2010-0374761I7 - Section 160 and Multiple Transfers of Property

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 one assessment can be used to encompass a number of transfers of property.

Position: Yes.

Reasons: While an assessment does not create a liability, and is at most a confirmation of its existence, it is deemed to be valid and binding notwithstanding any error, defect, or omission therein. A tax liability is not affected by an incorrect or incomplete assessment.

							July 23, 2010

	Vancouver Tax Services Office		HEADQUARTERS
	Appeals Division				Income Tax Rulings
							  Directorate
	Attention: Bob Smith			Lindsay Frank
	          Chief of Appeals		(613) 948-2227

							2010-037476

Section 160 and Multiple Transfers of Property

This is in reply to an email from Linda Wik. At issue is whether a single notice of assessment under section 160 of the Income Tax Act is legally sufficient to bind multiple transfers of property.

The purpose of section 160 is to prevent a taxpayer from avoiding paying a tax liability by transferring property to non-arm's length persons, while still benefitting from the assets, see Campbell v. The Queen, 2009 D.T.C. 1631 (T.C.C.). A successful transfer of such property renders the recipient of the property (the transferee) liable for the transferor's tax liability in the year of the transfer or any preceding year, to the extent that the fair market value transferred to the transferee exceeds the consideration received. The obligation imposed on the transferee is the transferor's property interest that would have been available for attachment, but for the transfer, see Hewett v. The Queen, [1998] 1 C.T.C. 106 (F.C.A.).

During the period XXXXXXXXXX 2006, and XXXXXXXXXX 2008, the transferor made XXXXXXXXXX transactions involving the transfer of funds into a bank account, which he jointly owned with his spouse. At the time of the transfers, the transferor was indebted for tax, penalty and interest in respect of the XXXXXXXXXX and XXXXXXXXXX taxation years. On July 20, 2009, his spouse was assessed under subsection 160(2) in respect of the amounts transferred. She has objected to the assessment, contending that a notice of assessment should be issued for each transfer. In short, XXXXXXXXXX assessments should have been issued instead of one.

Under subsection 152(3) a tax liability is not affected by an incorrect or incomplete assessment, and under subsection 152(8) an assessment is deemed to be valid and binding notwithstanding any error, defect, or omission therein. It was held in The Queen v. Leung, [1993] 2 C.T.C. 284 (F.C.T.D.) that these provisions are clear, and must be given some weight; they cannot be simply disregarded on an allegation that an assessment is misleading. It was also held in Leung that an overly formalistic approach to a notice of assessment should be disregarded, since it is neither similar nor analogous to a charge or count on a criminal indictment. Furthermore, the hardened and extremely inflexible rules which apply to criminal proceedings do not and should not apply to a notice of assessment or to the proceedings which flow from it.

In the instant case, the notice of assessment reflects the required criteria of the Act. It states the amount assessed, cites the statutory provision under which the transferee is liable, identifies the property (cash) transferred, and names the transferor. In addition, it directs the transferee to refer to an attached document for details regarding the assessment. This is sufficient to put the transferee on notice that an amount is due and payable. If the grounds of the assessment are not sufficiently detailed, it is open to the transferee to impose the burden on the CRA to provide the details, see Leung above. It is noted that the transferee requested and received information on the assessment.

A taxpayer cannot hide behind any alleged shortcomings in an assessment, see Optical Recording Laboratories Inc. v. Canada, [1986] 2 C.T.C. 325 (F.C.T.D.). Furthermore, a notice of assessment does not create a tax liability, but is at most a confirmation of its existence, see The Queen v. Simard-Beaudry Inc., 71 D.T.C. 5511 (F.C.T.D.). The non-arm's length transfer of property liability arises from the Act, and the liability is triggered the moment the property is transferred, see Ingrao v. The Queen, [1989] 1 C.T.C. 2052 (T.C.C.).

The courts have accepted the CRA's practice of issuing one notice of assessment in respect of multiple transfers of property, see for instance Waugh v. The Queen, [2008] 1 C.T.C. 2611 (T.C.C.), aff'd in 2008 D.T.C. 6379 (F.C.A.); Livingston v. The Queen, [2008] 3 C.T.C. 230 (F.C.A.), rev'g [2007] 5 C.T.C. 2070 (T.C.C.); Wannan v. The Queen, [2003] 2 C.T.C. 2303 (T.C.C.), aff'd in [2004] 1 C.T.C. 326 (F.C.A.); Raphael v. The Queen, [2000] 4 C.T.C. 2620 (T.C.C.), aff'd in [2002] 2 C.T.C. 75 (F.C.A.); Michaud v. The Queen, [1998] 4 C.T.C. 2675 (T.C.C.); Ducharme v. The Queen, [2004] 4 C.T.C. 2066 (T.C.C.), aff'd in [2005] 2 C.T.C. 323 (F.C.A.); Ruffolo v. The Queen, [1998] 4 C.T.C. 2114 (T.C.C.), aff'd in [2000] 3 C.T.C. 142 (F.C.A.); and White, K.A.D., v. The Queen, [1995] 1 C.T.C. 2937 (T.C.C.). In Waugh, the notice of assessment related to fourteen transactions involving the transfer of funds to the transferee's personal bank account.

Based on the foregoing jurisprudence there would seem to be little doubt that a single assessment issued for multiple transfers would withstand scrutiny by the Tax Court of Canada. There are, however, two other issues that need to be addressed.

The first issue concerns the comment in Ms Wik's email, which indicates that the deposits, net of those made by the transferee, were "divided by 50% to arrive at the benefit conferred by the transferor." This presupposes that consideration was given for family support obligations. If that was the driving factor for only taking 50% of the net deposits into account, your attention is drawn to the decision in Yates v. The Queen, [2009] 3 C.T.C. 183 (F.C.A.) where it was unequivocally held in paragraph 67 that,

"A plain language interpretation of subsection 160(1) does not allow for a family law exception, nor does it allow for household expenses. If Parliament had wanted to provide for such exemptions, it would have done so expressly. It is not for our Court to read these exemptions into the Act."

The joint and several liability of the transferee under subsection 160(1) is calculated with reference to the date of the transfer and on the basis of the lesser of the transferor's tax liability and the amount by which the fair market value of the property exceeded the consideration given for the property. In this regard, family support obligations and household expenses do not form part of the consideration given.

The second issue is of an evidentiary nature. Your attention is drawn to the case of Crischuk v. The Queen, 2010 DTC 1184 (T.C.C.), which followed the decision in Yates. The case is of interest not only from the finding that no consideration flowed from the performance of household services and chores by the transferee, but also from the standpoint that deposits were made to a joint bank account from which mortgage and lease payments were made. The payments were in respect of obligations related to assets registered in the name of the transferee. The Court held that it was the payment of those expenses that constituted the transfers of property and not the mere deposits into the joint account.

It is suggested that in the circumstance of the case that Ms Wik is reviewing, the deposits into the joint bank account do not constitute transfers. The evidentiary burden that needs to be met in order to establish transfers for the purpose of subsection 160(1) will require tracing. What will need to be proven, is how the monies so deposited were used and for what purpose.

Should you require clarification or need additional information, please do not hesitate to contact Lindsay Frank at the number provided above.

B.J. Skulski
Manager
Insolvency and Administrative Law Section
Ontario Corporate Tax Division
Income Tax Rulings Directorate

c.c. Linda Wik
Appeals Division
Vancouver Tax Services Office