Section 160

Subsection 160(1) - Tax liability re property transferred not at arm’s length


Jefferson v. Canada, 2022 FCA 81

taxpayer did not demolish s. 160 assessment by showing that he had provided partial consideration for the corporate payments

The taxpayer relied on a statement in Hickman that the “initial onus of ‘demolishing’ the Minister’s exact assumptions is met where the appellant makes out at least a prima facie case.” He argued that since he had established that around ¼ of the payments received by him as cheques from a corporation, with which he did not deal at arm’s length, properly reimbursed him for business expenses, he had demolished the Minister’s “exact” assumption made in assessing him under s. 160 that the taxpayer had “provided no consideration for the cheques.”

In rejecting this position, Monaghan JA stated (at para. 21) that the taxpayer “places far too much emphasis on the word ‘exact’ and gives insufficient weight to the word ‘demolish’ in … Hickman.” and further stated (at para. 24) that “establishing some consideration for the cheques is not sufficient to demolish the Minister’s assumption,” noting in this regard (at para. 25) that the “purpose of pleading the assumption is to provide the appellant with notice of the case the appellant has to meet” and here, the taxpayer knew that, in the context of a s. 160 assessment, he needed to establish that he had provided fair market consideration for the cheques, “not merely some consideration.”

Rather than being bound, by the purported demolishing of the Minister’s assumption, to find that there was full consideration given by the taxpayer for the cheques received by him from Global “it was open to the Tax Court to determine the value of the consideration the appellant gave for the cheques based on all the evidence tendered” (para. 28).

Locations of other summaries Wordcount
Tax Topics - General Concepts - Onus a taxpayer had not “demolished” the Minister’s assumption where it is demonstrated to be somewhat incorrect 415

Kufsky v. Canada, 2022 FCA 66

per majority, taxpayer estopped from arguing that she had not received a dividend when she had already pocketed at tax benefit from submitting the contrary

As a result of incurring personal expenses on here corporation’s credit card, the taxpayer owed a balance to the corporation in July 2021. The balance was then reduced by recording dividends as having been paid to her in 2009, 2020 and 2011. The corporation late-filed T5 slips showing those dividends, and she made T1 return amendments to report those dividends, which CRA accepted.

Webb JA found that the taxpayer was estopped from now arguing that the mooted dividends in fact were not dividends (so that s. 160 did not apply to their payment) - because the appropriate procedures for the declaration and payment of the amounts as dividends were not followed and because s. 38(3) of the Business Corporations Act (Ontario) prohibited the payment of a dividend by an insolvent corporation – on the basis of the application of the principle (based on Wolofsky, 2001 FCA 119) that:

[A] taxpayer who has benefited from having an amount included in his or her income as a dividend in a particular taxation year (and who has not objected to the assessment of tax based on having received this dividend) is estopped from claiming in any subsequent appeal related to the application of section 160 of the Act, that the previous filing position was wrong. (para. 62)

Having noted that the taxpayer had benefited from being assessed on the amounts received as dividends as the alternative would have been s. 15(2) inclusions, in the earlier years of the expenditures, at a higher rate of tax, Webb JA stated (at para. 63) that she had “accepted that these amounts are dividends for the purposes of sections 82 and 121” and that “[s]he cannot now say, for the purposes of section 160 of the same statute, that she did not receive these same amounts as dividends in the same years.” Although she was now precluded from arguing that she had not received the dividends, in any event, there was “also no merit to her argument that the dividends were not paid, as they were credited to her shareholder loan account to reduce the amount that she owed the Corporation” (para. 72).

He also found (following Gilbert) that the “fair market value of property for the purposes of section 160 of the Act is not reduced because the recipient is required to pay tax in relation to the receipt of property from the tax debtor” (para. 75).

In also noting that the application of s. 160 to the dividends appeared to accord with the purposes of s. 160, he stated (at para. 76) that the dividends had been paid by way of set-off against the shareholder debt and (at para. 77) that “the assets of the Corporation that would have been available to pay its tax debts were reduced” as a result of the dividends, which were “transfers of property for no consideration” (para. 79).

In her concurring reasons, Monaghan JA found that s. 160 applied on the basis that the taxpayer had not made out a prima facie case that the dividends had not been paid, and noted (at para. 82) that “[w]hile a breach of the solvency test may be unwise, and have consequences for the directors, shareholders or corporation, that does not mean a dividend was not declared and paid.”

Locations of other summaries Wordcount
Tax Topics - General Concepts - Fair Market Value - Other property transfer amount not determined net of income taxes 76
Tax Topics - General Concepts - Estoppel a taxpayer received dividends for s. 160 purposes where she was estopped from arguing otherwise or because the corporate insolvency did not matter 307
Tax Topics - General Concepts - Onus prima facie case requires a balance of probabilities 237
Tax Topics - General Concepts - Payment & Receipt dividend was paid by way of retroactive set-off against shareholder loan account 174
Tax Topics - General Concepts - Illegality dividend declared and paid by insolvent corporation would be valid 301


s. 160 did not apply to s. 55(3)(a) where each step involved a value-for-value exchange (including the cross-share redemptions)

Pursuant to a conventional s. 55(3)(a) spin-off transaction, described below, a company (Oldco) spun off one of its two businesses to a “Newco” also owned by its sole individual shareholder (Piche):

  1. Piche engaged in a preliminary transaction to exchange his common shares of Oldco for new Class A voting shares and Class C non-voting redeemable shares with an aggregate redemption amount of $30 million, subject to a price adjustment clause.
  2. Piche transferred such Class C shares to Newco under s. 85(1) in consideration for shares of Newco having an equivalent fair market value (“FMV”).
  3. Oldco sold the business to Newco in consideration for the assumption of related liabilities (not including the tax liability, of which Piche was unaware) and in consideration for Newco preferred shares with a redemption value of $30M (subject to a price adjustment clause);
  4. The shareholdings issued in 2 and 3 above were redeemed with notes, with the notes then being set-off pursuant to a set-off agreement.

Newco was assessed 12 years later under s. 160 for a reassessment (plus interest) that had been made of Oldco following the spin-off.

The Crown submitted that “where a transfer is effected through a number of preordained transactions that together result in the transferor’s patrimony being depleted … [the word] ‘time’ [in s. 160] can encapsulate the whole of the transactions effecting the transfer” (para. 28). In rejecting this submission, Noël CJ stated (at para. 58):

[T]he adequacy of the consideration given must be measured against the value of the property transferred by way of a “snapshot” taken at the point in time when the transfer takes place. … [I]t is not disputed that Newco gave Oldco adequate consideration at that time … .

In this regard, he had stated (at para. 53):

Allowing these values to be ascertained over a period of time, without pinpointing exactly when, would produce inherently uncertain results, something that Parliament cannot have intended.

In further reversing the finding below, that the note (the “Oldco Note”) issued by Oldco to redeem its shares only had nominal value so as to engage the application of s. 160, he stated (at paras. 62-63):

[I]t was not open to the Tax Court judge to hold that the Newco note had “considerable” value and that the Oldco note had a “nominal” value since both were backed by the same assets (Reasons at para. 57). …

I also agree …that the Oldco note represented a bona fide debt in the face amount of $30 million. … The law is clear that the payment of a bona fide debt cannot trigger the application of subsection 160(1) which is precisely what took place when the notes were discharged … .

Finally, in rejecting the Crown submission that on the redemption by Oldco of its class C shares for a $30 million note, “no consideration was effectively given to Oldco in return” (para. 65), he stated (at para. 69):

… Oldco had to pay the $30 million redemption price and Newco in turn had to surrender the shares which had a corresponding $30 million value in its hands. It follows that what was given by Newco as consideration are shares having a value of $30 million. Subsection 160(1) can find no application when property of identical value is exchanged.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 248 - Subsection 248(10) “series of transactions” requires at least one tax-driven transaction 284
Tax Topics - General Concepts - Effective Date price adjustment clause eliminated any possible value discrepancy between the FMV of the transferred property and the consideration therefor 118
Tax Topics - Income Tax Act - Section 84 - Subsection 84(9) a shareholder whose shares have been redeemed has provided valuable consideration therefor by surrendering its shares 136
Tax Topics - General Concepts - Fair Market Value - Other note supported only by pref, then note, of a sister had full FMV 132

Canada v. 594710 British Columbia Ltd., 2018 FCA 166

stock dividend followed by redemption of the stock dividend shares effected in combination a transfer of property for no consideration

Income account treatment of the profits realized by a condo-project limited partnership was avoided through the corporate partners (the Partnercos) of the partnership paying safe income dividends (out of the realized but unallocated condo profits) to their respective Holdco shareholders through the payment of stock dividends of preferred shares followed by a redemption of those preferred shares – in turn, followed by a sale by the Holdcos of the Partnercos to a public company with substantial resource pools (Nuinsco). The income of the partnership for the year in which the condo sales had occurred was allocated to Nuinsco following the winding up into it of the Partnercos.

After first finding that the allocation of the income to Nuinsco rather than to the Partnercos represented an abusive avoidance for purposes of s. 245(4) of ss. 96(1)(f) and 103(1), Woods JA went on to find that s. 160 would have applied to the transfer of property of the Partnercos to the Holdcos effected through the preferred share stock dividends and redemptions but for the fact that the associated tax liability did not arise until the income was allocated to an arm's length person (Nuinsco), stating (at paras. 112, 115):

The stock dividends and the redemption together resulted in a transfer of cash “indirectly … by any means whatever” from Partnerco to Holdco without consideration. …

Although the Algoa Trust decision deals with a cash dividend, the combination in this case of stock dividends followed by a redemption has the same effect and similarly results in a transfer of property without consideration.

She went on to find that it was an abuse under s. 245(4) for the application of s. 160 to have been avoided given that the acquisition of the Parterncos, which resulted in the year end occurring before teh allocation of income, "arose as part of a series of transactions that was devoid of any purpose or effect except to obtain a tax benefit" (para. 123).

Words and Phrases
Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 245 - Subsection 245(4) allocation of most partnership profits to a lossco that acquired its interest at year end without economic risk was vacuous and abused ss. 96(1)(f), 103(1) and 160 634
Tax Topics - Income Tax Act - 101-110 - Section 103 - Subsection 103(1) s. 103(1) likely applies to the allocation of most of the partnership profits at year end to a lossco that never had significant economic interest or risk in the partnership business 327
Tax Topics - Income Tax Act - Section 152 - Subsection 152(8) s. 152(8) cured an error in an assessment as to when the taxation year in question commenced 371
Tax Topics - Income Tax Act - Section 96 - Subsection 96(1) - Paragraph 96(1)(f) purpose of s. 96 is for income allocation to be allocated in accordance with economic participation 102

Lemire v. The Queen, 2013 DTC 1065 [at 346], 2012 TCC 367, aff'd 2014 DTC 5088 [at 7100], 2013 FCA 242

in Quebec, deposit of funds into another's account is not a "transfer" if the depositor retains "patrimony" over the funds

The taxpayer's common-law partner, in order to circumvent a hold on his account relating to personal financial difficulties, would have the taxpayer deposit the cheques in her account, and then usually transfer the funds to him on the same day. Tardif J. found that these transactions did not effect a "transfer of property" to the taxpayer for the purposes of s. 160(1). Although the Court of Appeal in Livingston held that the mere deposit of funds into another person's bank account constitutes a transfer of property, Tardif J stated (at TCC para. 35):

The fact that an item of property is simply in the possession or control of a third party does not have the effect of removing it from the tax debtor's patrimony. Although the scope of the word "transfer" is broad, a transfer still requires the transferor to meet a condition precedent, namely, to have actually vested the property in the alleged transferee or recipient.

The taxpayer followed her partner's instructions precisely, she rarely held the funds for more than a few hours, and she never had any right to enjoy or dispose of the proceeds (para. 71). Tardif J therefore found that, even if there were a transfer, the taxpayer's behaviour was consistent with a mandatary relationship under civil law, and transfers of property to a mandatary are not transfers of property under s. 160(1).

Noël JA affirmed that Tardif J's decision was correct under civil law, noting in particular that Livingston dealt with common law (FCA para. 30).

Words and Phrases

Canada v. 9101-2310 Québec Inc., 2013 DTC 5172 [at 6455], 2013 FCA 241

transfer only of legal title may engage s. 160

In order to defeat a claim of a bank, a tax debtor ("Garneau") deposited $305,000 with the taxpayer (whose shareholder was his friend) to hold on his behalf and disburse as directed. Noël JA found that s. 1452 of the Civil Code entitled a third party (here, the Minister) to avail itself of the "apparent contract" (i.e., Garneau's apparent divestment of the funds to the taxpayer) notwithstanding that this was a "simulation" under s. 1451, so that s. 160 could be applied as if there had been a property transfer. Furthermore, the taxpayer and Garneau were not dealing at arm's length as they were acting in concert: see summary under s. 251(1)(c). S. 160 applied.

Respecting a hypothetical similar transaction in a common law province, Noël JA noted (at para. 53):

The rule to be gleaned from [Livingston] that the transfer of legal title in a sum of money may give rise to a transfer for the purposes of subsection 160(1) where it is intended to conceal the fact that the tax debtor is the beneficial owner of this sum and thwart the tax authorities' collection efforts.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 251 - Subsection 251(1) - Paragraph 251(1)(c) accommodation party was acting in concert 185

2753-1359 Québec Inc. v. Canada, 2010 FCA 32

dividend is a transfer of property without consideration

In rejecting a submission that the payment of dividends to the appellant were not a transfer of property without consideration, Létourneau J.A. stated (at paras. 9-10):

According to case law, there is no doubt that the payment of dividends is a transfer of property within the meaning of section 160.

In addition, it is difficult to see how the legal treatment of a dividend under corporate and civil law would prevent Parliament from regarding that dividend, for tax purposes, as a transfer of property without consideration when made by persons who are not dealing at arm’s length.

Yates v. Canada, 2009 DTC 5758, 2009 FCA 50

satisfaction of legal obligation to support family not consideration

In allowing her husband to live in the family residence, the taxpayer was not providing consideration at fair market value. A line of cases that took the position that payments made in satisfaction of a legal obligation to support his family were beyond the reach of section 160, was overruled. Accordingly, s. 160 applied to a transfer of property effected to the taxpayer when her husband removed his name from two joint bank accounts and deposited his paycheques into the taxpayer's account.

Canada v. Rose, 2009 DTC 5076 [at 5806], 2009 FCA 93

The taxpayer's husband transferred his co-ownership interest in the matrimonial home to the taxpayer in order to prevent a creditor from placing a lien on the home. In reversing the finding of the Trial Judge that her husband had only transferred registered title and not the beneficial interest to the taxpayer, Evans, J.A. stated (para. 31) that it was an "almost inescapable inference" from the statement of the husband's purpose in transferring title that "he intended to do this in the most effective, and lawful, manner" that is, by transferring his entire interest in the house" (para. 31).

Canada v. Livingston, 2008 DTC 6233, 2008 FCA 89

transfer to an accommodation party was caught

In order to help her friend (Davies) defeat efforts of CRA to collect unpaid taxes from Davies, the taxpayer opened up a bank account in the taxpayer's own name to which Davies deposited funds from time to time and from which Davies from time to time withdrew funds to pay Davies' expenses. After noting (at para. 22) that "subsection 160(1) categorizes a transfer to a trust as a transfer of property", Sexton J.A. went on to note (at para. 27) that "it is clear that the transaction between Ms Davies and the respondent left Ms Davies without anything equivalent to the property transferred that could be collected by the CRA, and thus there could not possibly be consideration". Although "forbearance - the act of refraining from enforcing a right, obligation, or debt - can act as consideration for a promise given in return ... there is no legal forbearance in this case." (para. 29)

The taxpayer's appeal of an assessment of her under s. 160(1) was dismissed.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 251 - Subsection 251(1) - Paragraph 251(1)(c) accommodation bank account 102

Canada v. Addison & Leyen Ltd., 2007 DTC 5365, 2007 SCC 33, [2007] 2 S.C.R. 793

delay in assessing under s. 160 not reviewable

The taxation year of a corporation ("York") owned principally by one of the applicants ("Addison") ended on September 28, 1989 by virtue of a sale of York to a third party ("Senergy"). During its September 28, 1989 taxation year, York incurred a tax liability as a result of an asset sale, retained cash sufficient to pay the estimated amount of that tax liability, and made various payments in the year including directors fees, retiring allowances, management fees, loans and dividends. Although at the time of the sale of York to Senergy, York's net asset value was approximately nil, Senergy paid over $1 million for the York shares because Senergy had arranged for York to purchase seismic data immediately before the closing of the sale with a view to a resulting deduction eliminating tax liabilities of York.

In rejecting the taxpayer's submission that the long delay of the Minister in assessing the applicants under s. 160 was abusive and should be subject to judicial review under s. 18.5 of the Federal Courts Act, McLachlin C.J. noted that the Minister had the discretion under s. 160 to reassess a taxpayer at any time, so that "the length of the delay before a decision on assessing a taxpayer does not suffice as a ground for judicial review, except, perhaps, in as much as it allows her a remedy like mandamus to prod the Minister to act with due diligence once a notice of objection has been filed" (para. 10) and stated (at para. 11) that "judicial reviews should not be used to develop a new form of incidental litigation designed to circumvent the system of tax appeals established by Parliament and the jurisdiction of the Tax Court."

Wannan v. Canada, 2003 DTC 5715, 2003 FCA 423

The Court followed Heavyside v. Canada, 97 DTC 5026 (FCA) in finding that the liability of the taxpayer under s. 160 with respect to contributions made to her RRSP by her husband was unaffected by his subsequent bankruptcy and discharge from bankruptcy, or by the fact that she was not assessed under s. 160 until after such discharge from bankruptcy. Furthermore, in determining what was the tax liability of her husband at the time of the contributions, the Crown was not bound to treat the payment to it of a bankruptcy dividend as being applied in payment of the oldest balances owing to the Crown by the taxpayer's husband and, instead, was not precluded from applying this bankruptcy dividend, as it did, to the newest of his tax liabilities.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Payment & Receipt application of payment by creditor 110

Delage v. Canada, 2002 DTC 7061, 2002 FCA 212

The taxpayers had been unsuccessful in establishing an alleged connection between service rendered by them and dividends on shares held by them, so that it was not necessary to determine, for the purposes of section 160, whether the work presumably performed could constitute valuable consideration for the issuance of dividends.

Williams v. Canada, 2002 DTC 7463, 2002 FCA 380

The Court rejected a submission that a payment of the salary of the taxpayer's husband directly to her bank account was a transfer for consideration because it was made in satisfaction of his lawful obligation to support her to the level of her accustomed standard of living under s. 30 of the Family Law Act (Ontario).

Delage v. Canada, 2002 DTC 7061, 2002 FCA 212

The taxpayers were unable to establish that an amount paid to them as a dividend was, in fact, salary for services.

Biderman v. The Queen, 2000 DTC 6149, 2001 FCA 269 (FCA)

conduct subsequent to death inconsistent with disclaimer

The taxpayer made an "informal" disclaimer of his beneficial interest under the estate of his wife five days prior to her death (which was found to be invalid because the common law required that a disclaimer be made after the death of the legator) and, three years after her death, made a formal disclaimer. The formal disclaimer was found to operate as a surrender and release, rather than a disclaimer, because his conduct subsequent to her death was inconsistent with a disclaimer. Accordingly, the purported formal disclaimer acted as a transfer of property by him to the beneficiaries (his and her children).

Létourneau J.A. went on to note that because a disclaimer does not involve the vesting and divesting of property but, rather, operates by way of retroactive avoidance of a devise, s. 160 would not have applied if there had been a valid disclaimer.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 248 - Subsection 248(8) - Paragraph 248(8)(b) purported disclaimer was release or surrender 157

Gaucher v. The Queen, [2000] F.C.J. No. 1869 (QL), Docket: A-275-00 (CA)

transferee can challenge substantive merits of underlying assessment

In finding that the beneficiary of a transfer who had been assessed under s. 160 was permitted to challenge the primary tax assessment of the transferor (her husband), on the basis that the primary assessment was statute-barred, Rothstein JA stated (at para. 6):

It is a basic rule of natural justice that, barring a statutory provision to the contrary, a person who is not a party to litigation cannot be bound by a judgment between other parties. The appellant was not a party to the reassessment proceedings between the Minister and her former husband. Those proceedings did not purport to impose any liability on her. While she may have been a witness in those proceedings, she was not a party, and hence could not in those proceedings raise defences to her former husband's assessment.

Medland v. Canada, 98 DTC 6358 (FCA)

There was a transfer of property to the taxpayer for purposes of s. 160(1) when her husband, who was the joint mortgagor on a house that at the relevant times, was owned by her, paid monthly amounts due under the mortgage. By virtue of such payments, the taxpayer became less indebted and her equity in the property increased. The words "property" and "transfer" had been broadly defined in the jurisprudence.

Words and Phrases
property property acquired

Canada v. Heavyside, 97 DTC 5026, [1997] 2 CTC 1 (FCA)

The taxpayer was liable under s. 160(1) in respect of the transfer of property to her by her husband, notwithstanding that her assessment under s. 160(1) followed her husband's discharge as a bankrupt. The order of discharge did not affect the liability of the taxpayer, and the earlier decisions in Caplan v. The Queen, 95 DTC 709 (TCC) and Gamache v. The Queen, 96 DTC 1436 (TCC) dealing with this issue were referred to as being confused.

Kostiuk v. The Queen, 93 DTC 5511, [1993] 1 CTC 31 (FCTD)

Strayer J. found that there had been a "transfer" within the broad meaning of s. 160(1) of a beneficial interest in the land to the taxpayer by her father prior to the introduction of the expanded version of s. 160(1) effective November 12, 1981 given that prior to that date her father had entered into a separation agreement with his wife binding him to transfer the land to his daughter. It was irrelevant that a land transfer document signed by him prior to November 12, 1981 turned out to be unregistrable and had to be replaced later.

Mah v. The Queen, 93 DTC 5267 (FCTD)

A proported transfer to the taxpayer by his parents of their home without his knowledge or consent did not divest them of their beneficial rights to the property and, therefore, did not constitute a transfer for purposes of s. 160. Transactions to transfer the beneficial ownership to the taxpayer did not occur until a taxation year subsequent to that assessed.

Furfaro-Siconolfi v. The Queen, 89 DTC 5519 (FCTD)

A marriage contract between the taxpayer and her husband had provided that he "shall ... and furthermore donates unto his said future wife hereto present and accepting [$30,000] ... to be paid at any time during the marriage as he sees fit, the First Party hereby constituting himself debtor of the Second Party to the extent of the said sum."

Under the Civil Code, there was a "transfer of property" at the date of the marriage contract, rather than at the time of payment three years later, with the result that s. 160 could not be applied on the basis of the husband's tax position at the time of payment.

See Also

Damis Properties Inc. v. The Queen, 2021 TCC 24

s. 160 did not apply to a sale of companies holding cash sales proceeds to a purchaser who purported to eliminate the tax liability

Each of the five corporate taxpayers participated in the following transactions in order to increase their after-tax return from a sale of farmland in Brampton owned by five general partnerships, each owned as to 99.99% by the respective taxpayers:

  • each taxpayer transferred its partnership interest to a newly-incorporated subsidiary on a s. 85(1) rollover basis in consideration for common shares;
  • in January 2006, the partnerships closed the sale of the farmland with, in some cases, the proceeds being lent to the applicable taxpayer or a parent thereof
  • following the May 31 year end of the general partnerships, the sales proceeds were distributed to the respective subsidiaries
  • on December 28, the stated capital of the common shares held by each taxpayer in its subsidiary was increased to an amount approximating the expected sale price of the shares in the subsidiary in order to increase the ACB of those shares by the same amount;
  • on December 29, the taxpayers entered into a share put agreement with a third party (“WTC”) entitling each taxpayer to put the shares of its subsidiary to WTC for a price equaling the after-tax value of the subsidiary plus 46% of the tax liability of the subsidiary resulting from the allocation by the general partnership to the subsidiary of the income from the sale of the farmland;
  • on December 29, each director and officer of the subsidiary resigned and was replaced by a nominee of WTC;
  • on December 31, each taxpayer exercised the put and closed the sale of the shares of the subsidiary to WTC, with WTC using the cash or receivables in the subsidiary (the “Property”) to discharge the payment of the purchase price immediately after the transfer of the purchased shares.
  • Unbeknownst to the taxpayers, WTC then purported to offset the tax liability in each subsidiary by having each subsidiary purchase software and claim CCA. (Owen J found that this stratagem was unsuccessful on the grounds that the software was not acquired for an income-producing purpose.)

In 2016, the Minister assessed each taxpayer under s. 160(1) for the income tax liability of that taxpayer’s subsidiary for its taxation year ending December 31, 2006 determined without regard to the above CCA claims.

Before finding that s. 160(1) did not apply, Owen J found that the requirement in the preamble to s. 160(1) – that there have been a transfer of Property by each subsidiary to the taxpayer “either directly or indirectly” --had been satisfied, stating (at para. 137):

[T]he participation of WTC in the indirect transfer of the Property does not alter the basic fact that the Property that was originally in the subsidiaries ended up in the hands of the Appellants.

However, the requirement in s. 160(1)(c) that the taxpayer be a person who was not dealing with the subsidiary at the relevant time was not satisfied. Given the use in s. 160 of the phrase “has transferred,” it was “reasonable to conclude that a person has transferred property to another person for the purposes of subsection 160(1) only when all the steps required to carry out that transfer have taken place” (para. 146), so that the relevant time for testing the relationship was the time of the final step “when WTC transferred the Property to the Appellants to pay for the shares of the subsidiaries” (para. 148). At that time, the taxpayer was deemed by s. 256(9) to have no longer had legal control of the subsidiary from the beginning of that day – and the taxpayer also was dealing with the subsidiary at arm’s length as a factual matter at that time, given that a WTC nominee had taken charge as director and officer of the subsidiary two days’ previously, as requested by it for its commercial (albeit, ineffectual) purposes.

S. 160(1) also was inapplicable on the basis that (having regard to s. 160(1)(e)) the taxpayers received the fair market value of their shares. In this regard, Owen J stated (at paras. 209-210):

[I]n my view the words “consideration given for the property”, when read in the context of the entire subsection, can only mean consideration given by the transferee for the property regardless of who receives that consideration. …

Subsection 160(1) is imposing a liability on the transferee for the transferor’s liability under the ITA. This can only be done in a fair and reasonable manner if the transferee receives credit for the consideration given for the property that triggers the liability. …

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 245 - Subsection 245(1) - Tax Benefit no tax benefit based on comparison to a commercially unrealistic alternative 276
Tax Topics - Income Tax Act - Section 245 - Subsection 245(3) no avoidance transaction where there was no intention to avoid the provision purportedly abused 339
Tax Topics - Income Tax Regulations - Regulation 1102 - Subsection 1102(1) - Paragraph 1102(1)(c) software was not acquired with an income-producing purpose 282
Tax Topics - General Concepts - Onus unfair to place the onus on taxpayer re facts which taxpayer could not reasonably be expected to know 339

Goldman v. The Queen, 2021 TCC 13

s. 160(1) did not apply to a transfer to an individual qua trustee of a valid oral trust

The taxpayer’s mother, Ms. Goldman, orally told the taxpayer that she was designating the taxpayer (who was also appointed as the executor) as the beneficiary of Ms. Goldman’s RRSP on the explicit understanding that the taxpayer would use the proceeds of the RRSP to pay the expenses of Ms. Goldman’s funeral including the travel costs of her other daughters, and of administering her estate, pay her final bills, and divide any remaining funds among the Appellant and her two sisters. The taxpayer applied the $76,616 in net proceeds from the RRSP (the “RRSP Proceeds”) largely as instructed.

In concluding that the RRSP Proceeds were transferred to the taxpayer in her capacity of trustee of a trust, Graham J found that the three certainties for the creation of a trust: of subject (the RRSP Proceeds); of object (as orally directed by Ms. Goldman); and of intention (as to which he stated, at para. 32 that “[i]n Ontario, there is no requirement that a trust (other than a trust in respect of land) be in writing to be effective” and (at para. 35) that “the obligation that Judith Goldman imposed on the Appellant was more than a moral obligation.”)

In further finding that the transfer of the RRSP Proceeds to such trust gave rise only to a s. 160 liability of such trust, viewed as a separate person, and not to the taxpayer personally, he stated (at paras. 47-48):

Subsection 104(2) … deems a trust to be an individual in respect of the trust property … .

Thus, a tax debt owed by a trust is a debt of the trust itself … [and] is not a personal debt of the trustee. While subsection 104(1) imposes on the trustee the obligation to use the trust’s assets to pay that debt, it does not impose the debt itself on the trustee personally.

As the transfer of the RRSP Proceeds to the trust did not entail of transfer of property to the taxpayer (other than of the legal title), s. 160(1) did not apply.

However, there was “an indirect transfer from the Appellant’s mother to the Appellant by means of a trust for no consideration at a time that her mother owed tax” (para. 84) for s. 160(1) purposes respecting not only the transfer to her of her share of the residue of the trust but also regarding the transfer to her of other funds out of the trust funds including the payment out of such funds of legal fees relating to this tax dispute (which Graham J regarded as a personal rather than an estate expense) – so that the taxpayer was liable under s. 160(1) for such amounts. There was not such liability regarding the payment to her of $4.500 in executor’s fees, which were consideration for her services.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(2) trustee had no liability for application of s. 160(1) to transfer to the trust, absent s. 159(3) 215
Tax Topics - Income Tax Act - Section 159 - Subsection 159(3) CRA could have assessed taxpayer qua trustee, for the s. 160(1) liability of her trust arising on its settlement, under s. 159(3) given the distribution of the corpus without a certificate 193
Tax Topics - Other Legislation/Constitution - Federal - Tax Court of Canada Rules (General Procedure) - Section 49 - Subsection 49(1) “taking note” of a fact pleaded by the taxpayer is not a permitted Crown response 131
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(1) oral instructions, before her death, by mother to daughter re application of the proceeds of her RRSP gave rise to a trust 208

Dreger v. The Queen, 2020 TCC 25

a distribution from a deceased father’s fund to his surviving children was a related-person transfer

The taxpayers were the named beneficiaries of a life income fund held by their late father. In reliance on Kiperchuk (which found a taxpayer not to be related to her deceased husband respecting a transfer following his death) they argued that the resulting distributions to them were from an arm’s length person, so that s. 160 did not apply to them respecting their deceased father’s tax debts.

In rejecting their appeals, D'Arcy J stated (para. 27):

I agree with [Kiperchuk] that under the relevant provincial law the statutory status of marriage was ended by death. However, the relationship of father and child is not a statutory relationship; it is a factual relationship. … [T]he Appellants are [still] the children of …[the father].

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 251 - Subsection 251(6) - Paragraph 251(6)(a) children continued to be related to their deceased father 251

White v. The Queen, 2020 TCC 22

deposit by spouse to joint bank account with the taxpayer was not a transfer to her

The taxpayer’s husband transferred $90K in pay cheques to the joint bank account between him and the taxpayer while he had tax debts, as a director for a defunct company, for unremitted GST and source deductions of that company. In finding that these deposits did not constitute a transfer to the taxpayer for purposes of ITA s. 160 (and ETA s. 325), D’Arcy J stated (at para. 28):

[T]he mere placing of funds in a joint bank account does not constitute a transfer. Mr. White … continued to have full access to the funds in the account.

Accordingly, he vacated the s. 160 assessment, and found that the s. 325 assessment could only be made in the smaller amount ($34K) of the transfers that had, in turn, been made from their joint account to the taxpayer’s own bank account.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 325 - Subsection 325(1) transfer by tax debtor to joint bank account with his spouse was not a transfer to her 330

Muir v. The Queen, 2020 TCC 8 (Informal Procedure)

s. 160 did not apply to moneys transferred subject to an informal arrangement to discharge liabilities of the transferor

All the assets of the professional corporation of the taxpayer (Ms. Muir) were sold for $1.2 million to an arm’s length purchaser. At closing, the Corporation’s law firm paid out $1.1 million to settle various liabilities of the Corporation, and paid the remaining $124,000 to Ms. Muir, as discussed with her lawyer and in accordance with a Direction and Authority to Pay, to allow her to return “in trust” amounts held for patients, and pay various other creditors of the Corporation (as it would be less costly and more effective for her rather than the lawyers, to deal with the patients and the other creditors). All of the $124,000 (and an additional $1,000) was so applied. The Corporation was assessed in the subsequent year, thereby giving rise to a tax debt for which Ms. Muir was, in turn, assessed under s. 160.

At issue respecting the correctness of the s. 160 assessment was whether Ms. Muir had given consideration of $124,000 to the Corporation. Before vacating the assessment, Boyle J stated (at paras 19, 20 and 22):

I find that the $124,000 was transferred by the Corporation to Ms. Muir upon the sale of her dental practice subject to the requirement that all of it be promptly used to refund patients ‘in trust’ amounts and to repay creditors.

[I]t appears her patients and the Corporation’s creditors would have had legal rights to trace any of the monies involved had the Corporation transferred it to her for any other purpose or had she used it for any other purpose. This was not a discretionary, personal, moral decision she made as to how she spent money available to herself personally in her unfettered discretion.

[I]t is not just that I find the purpose, agreement and distribution was to more easily and inexpensively distribute the money to those with rightful claims to it, in this case CRA would be in absolutely no different position with respect to the Corporation’s unpaid taxes then had the Corporation not distributed the money to the Appellant first, but had itself directly made the identical distributions to the patients of their ‘in trust’ amounts and to the other legitimate suppliers, debts and creditors of the Corporation … . I do not accept that it was the intention of Parliament or … Livingston to have section 160 apply in circumstances where CRA not only wasn’t but could never be … in any different position whatsoever as a result of the transfer.

Singh v. The Queen, 2019 TCC 265

beneficial ownership in light of control, financing burden and title/cascading application available

When purchased in 1997, the family home for the taxpayer (Mrs. Singh), her husband (Mr. Singh) and their children was initially registered in the names of Mr. Singh and one of their sons. The purchased was funded with a gift from the parents of Mrs. Singh’s of $215,514, and a mortgage and a line of credit for $323,281 taken out by Mrs. Singh and his son. In 2002, at a time that Mrs. Singh had an unpaid tax debt, two other of the Singh children were put on title to the property as trustees for Mrs. and Mr. Singh (the beneficial owners), In 2009, the two children (as trustees) transferred legal title to the home to Mrs. Singh for nominal consideration of two dollars, at a time that Mr. Singh’s tax debt was still owing. The Respondent had assumed that Mr. Singh transferred his beneficial interest in the home to his wife at the same time.

It was common ground that Mrs. Singh was the full beneficial owner after 2009. In confirming the CRA assessment under s. 160 on the basis that Mr. Singh beneficially owned ½ of the home prior to 2009, so that there was a gratuitous transfer of property by Mrs. Singh in 2009 to him, MacPhee J stated (at paras 26, 27, 28):

… [Mr. Singh] exercised continued use and possession of the home. …[T]he trust agreement signed in 2002 clearly stated he was a beneficial owner having numerous rights and obligations that one would expect of a beneficial owner.

…Mr. Singh was the largest income earner in the family up to 2004. … [B]oth parents and the children all pooled their income together to ensure all home payments were made.

… “One needs very cogent evidence that a spouse who is shown as the legal owner of an interest in property is not also the beneficial owner.” [MacDougall v R, 98 DTC 2180 at para 25, [1998] TCJ No 599.]

MacPhee further suggested that there was an alternative position that he also would have favoured, had it been argued, that liability for the tax debt also flowed through to Mrs. Singh in 2009 as a result of the previous transfer in 2002 through a cascading applicability of s. 160, stating (at paras 38 and 39):

In this instance, Mr. Singh’s tax liability flowed through the children to his wife. …Mr. Singh transferred legal title to his children in trust when Mr. Singh owed tax, leaving the children liable for his debt. Legal and beneficial title to the home was transferred to Mrs. Singh in 2009 when the children were liable for Mr. Singh’s debt, leaving Mrs. Singh liable for her husband’s debt. The children therefore became transferors, even though the children had not been assessed under section 160 when they transferred property to Mrs. Singh.

He also noted (at para. 34) that “it could be argued that the value of what was transferred by Mr. Singh should be reduced in that Mr. Singh continues to live in the family home,” but this point also was not raised.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Fair Market Value - Land FMV of home potentially reduced by spouse continuing to live there 74
Tax Topics - General Concepts - Ownership markers of possession, use and risk applied in ascertaining beneficial ownership 174

Kufsky v. The Queen, 2019 TCC 254, aff'd 2022 FCA 66

a dividend that had not been declared nonetheless was a dividend for tax purposes

The taxpayer’s corporation issued T5 slips stating that it had paid dividends to the taxpayer in its 2009 through to 2011 taxation years. These amounts were not reported by the taxpayer, and the taxpayer’s new accountant filed T1 Adjustment Requests (according to the taxpayer, without her authority) reporting that these amounts were received by the taxpayer as dividends. The taxpayer did not sign the T1 Adjustment requests and testified that corporate resolutions were never passed in respect of the dividends. Prior to this appeal, there had been civil litigation and a settlement (on a without prejudice basis) with her accountant respecting such reporting by the accountant. In 2013, the Minister reassessed the taxpayer under s. 160.

In rejecting the taxpayer’s argument that the dividends were not a transfer of property because they did not occur at law due to of non-compliance with the provincial corporate law, MacPhee J stated (at paras 22 - 23):

The Appellant argued that the dividends reported in her tax return did not occur because they did not comply with section 38 of the Ontario Business Corporations Act, RSO 1990, c B.16, which provides that a dividend must be declared by the directors and shall not be declared if there are reasonable grounds for believing the corporation is insolvent… .

Leaving aside the discretionary component of ss. 38(3) of the above legislation, … nowhere [in section 253 of the Ontario Business Corporations Act] is it stated that non-compliance with the statute voids a reported dividend for the purposes of a section 160 assessment.

Larouche 2010 FCA 32 … stated that a reported dividend, even if not in compliance with the provincial statute, remains valid for tax purposes… .

…[I]t is difficult to see how the legal treatment of a dividend under corporate and civil law would prevent Parliament from regarding that dividend, for tax purposes, as a transfer of property without consideration when made by persons who are not dealing at arm's length. …

In also rejecting the taxpayer’s argument that a portion of the dividends were in fact loan repayments, he stated (at paras. 25-26):

However, this does not change the fact that the dividends … were reported as dividends … .

For the Appellant to be successful, it appears that I would have to deal with this matter as if it were an application for rectification, which is clearly outside this Court’s jurisdiction.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 82 - Subsection 82(1) payment was dividend even though no declaration 92

Eyeball Networks Inc. v. The Queen, 2019 TCC 150, rev'd 2021 FCA 17

s. 160 applied where a note of the tax debtor, whose only value was in a note owing, in turn, to it by a NAL company, was set-off against the latter note

“Oldco,” which was a software company which had both a largely defunct business respecting gaming (the “old business”) and a business, valued at $30M, relating to video conferencing (the “new business”), implemented a spin-off of the new business to a corporation (“Newco”) incorporated by its sole individual shareholder (“Piche”) pursuant to which

  1. Piche exchanged his shares of Oldco (on a s. 85(1) rollover basis) for Oldco shares of two classes, the second of which (the Class C shares) had an aggregate redemption value (subject to a price adjustment clause) of $30M;
  2. Piche transferred his Class C shares of Oldco to Newco under s. 85(1) in consideration for shares of Newco having an equivalent fair market value (“FMV”).
  3. Oldco sold the new business to Newco in consideration for the assumption of related liabilities (not including the tax liability referred to below, of which Piche was unaware) in consideration for Newco preferred shares with a redemption value of $30M;
  4. The shareholdings issued in 2 and 3 above were redeemed with notes, with the notes then being set-off pursuant to a set-off agreement.

The Minister subsequently assessed Oldco for approximately $126K in taxes plus interest and a late-filing penalty, and approximately 10 years later, assessed Newco under s. 160.

In rejecting the Minister’s position, which sought to” ignore the separate nature of the Oldco-Newco Agreement [in 3 above] by applying the phrase ‘by any other means whatever’ from section 16, (para. 45),” Bocock J stated (at para. 41) that “the text of section 160 lacks any reference to a series of transaction or to the purpose of the transfer” and (at para. 46) that “it does not allow the Minister to use the net result of a series of transactions to justify examining that very series of transactions” (para. 45). Accordingly, s. 160 did not apply to the transfer in 3 above as full consideration was received.

However, he found (at para. 57):

The FMV of the Oldco Note held and owned by Newco was nominal in any fair market for such negotiable bills. The FMV of the Newco Note held and owned by Oldco had considerable value as a negotiable bill; its worth was backed by the $30 million (or some value) of assets now owed by Newco. This cannot be said of the Oldco Note … . The consideration for the surrender or forgiveness of the valuable Newco Note was the surrender or forgiveness of the Oldco Note with nominal value. Oldco transferred valuable property (the Newco Note) for little value (forgiveness of the valueless Oldco Note). It is precisely “at the time” of transfer that the consideration proffered “at such time” was deficient … .

Accordingly, there was a transfer of property for insufficient consideration to which s. 160 applied at the time of the set-off transaction.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Fair Market Value - Other a promissory note that was backed only by intercompany debt was worthless 168

Monsell v. The Queen, 2019 TCC 5 (Informal Procedure)

CRA has the onus of substantiating assessments underlying s. 160 assessments where it had superior records access

The taxpayers (a husband and wife) received payments from a corporation (Newgate) that had been reassessed for its 2005 to 2007 taxation years and had not objected thereto (and subsequently was dissolved.) Their only ground of appeal was that these “underlying” reassessments were incorrect.

D’Auray J first noted (at para. 21) that “the case law is clear that a taxpayer faced with a section 160 assessment may challenge the underlying reassessment,” and the principle in Mignardi that “where the facts concerning the underlying reassessments are exclusively or peculiarly within the knowledge of the Minister, the onus will shift to the Minister to show the correctness of the underlying reassessments” (applied in Andrew (2015 TCC 1): “where the taxpayer ‘does not have and cannot obtain the information required to verify the existence or amount of the underlying tax liability’” (para. 23).) In finding that the Minister failed to discharge her onus to prove the correctness of the underlying reassessments for 2005 and 2006, she stated (at para. 28):

Newgate’s documents were at one time within the custody and the control of the CRA. However … the CRA lost or destroyed the documents. In light of this evidence, it would be unfair to place the onus on the appellants.

In finding that for the 2007 year, the onus was instead on the taxpayers, and before finding that they had failed to discharge this onus, she stated (at para. 29):

The appellants had available to them Newgate’s 2007 income tax return, as well as that of its associated corporation … . As no audit was performed by the CRA for Newgate’s 2007 taxation year, the Minister relied solely on the income tax returns filed by both corporations to reassess Newgate.

Since the amount of the underlying reassessment for 2007 was greater than the amount of the two payments made to the taxpayers, their s. 160 assessments were upheld.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Onus onus on CRA where it, rather than taxpayer, had access to the records underlying a reassessment 230
Tax Topics - Income Tax Act - Section 125 - Subsection 125(3) - Paragraph 125(3)(b) SBD denied because no agreement made 102

De Vries v The Queen, 2018 TCC 166

if requirement to pay assessment had been valid, it would have flowed through with a dividend

The two individual shareholders (husband and wife) of a corporation (“IPG”) were assessed under s. 160 regarding a dividend they had received from IPG on the basis that, at the time of the dividend, IPG had been assessed for failure to comply with a s. 224(1) requirement to pay (“RTP”) effectively requiring it to pay to CRA a demand loan owing by it to a former employee and business associate (“Houweling”).

Paris J accepted testimony that Houweling had orally agreed, prior to the receipt by IPG of the RTP, to postpone his right to receive repayment of the loan until the conclusion of a significant suit brought by IPG against a third party. He further found that “there has been an evolution in the doctrine of consideration in the context of contract modifications,” so that now “when parties to a contract agree to vary its terms, the variation should be enforceable without fresh consideration, absent duress, unconscionability, or other public policy concerns” (para. 57).

As the oral agreement of Houweling to postpone payment was contractually binding, the assessment of IPG for its purported failure to honour the RTP was invalid, so that there was no corporate liability to flow through to the taxpayers under s. 160.

In rejecting the taxpayers' alternative argument that they had provided consideration for the dividend, he stated (at para. 67):

The jurisprudence is conclusive that contributions made to a company by its shareholders do not constitute consideration for the payment of dividends by the company to those shareholders. The right to receive dividends is a right that attaches to shares and not to shareholders such that a shareholder’s right to receive the payment of a declared dividend flows directly from his or her status as the owner of shares.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 224 - Subsection 224(1) a corporate creditor’s oral agreement to postpone collection of his loan defeated a RTP encompassing that loan 394
Tax Topics - General Concepts - Effective Date oral agreement to postpone changed terms of loan 181

Aitchison Professional Corporation v. The Queen, 2018 TCC 131

s. 160(1) did not apply to a tax debtor providing services free of charge to the NAL transferee of his professional practice

At a time that James Aitchison owed $2.1 million in taxes, he transferred his law practice to a newly-incorporated professional corporation (the appellant) and thereafter worked for it as an unpaid volunteer or employee. His two daughters (also lawyers) worked for the appellant 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 appellant by virtue of choosing not to negotiate a salary for his valuable professional services, Graham J stated (at paras. 16, 19):

An employee negotiates the terms of his or her employment with the firm. Nothing that the employee provides to the firm could be described as “property”. An employee provides services, not property. The same is true for a volunteer.

By definition, volunteers are not compensated for their work. While employees should, of course, be fairly compensated for their work, their right to compensation flows from the employment contracts that they negotiate. 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. An employee does not have an enforceable right to the salary that he or she never negotiated. This is true even if an employee agrees to work for free.

He went on to state (at paras. 32, 35):

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?

Words and Phrases
Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Property (foregone) right to negotiate a significant salary was not property 169

HLB Smith Holdings Limited v. The Queen, 2018 TCC 83

s. 160 liability flowed through with dividends paid to 50-50 unrelated shareholders

Two individuals held their 50-50 Opco through a holding company held by a family trust, in the case of Mr Smith, and through a family trust in the case of Mr Scott. Whether unpaid tax liabilities attached under s. 160 to dividends paid regularly by the Opco, for distribution up the chain, turned on whether they were not dealing at arm’s length with Opco. Although each did not control Opco, D’Arcy J followed Fournier in finding that they were acting in concert respecting the payment of the Opco dividends, so that s. 160 so applied (para. 28):

Mr. Smith and Mr. Scott as the Operating Company’s only directors and officers acted in concert and with a common economic interest to decide how they would withdraw the profits made by the Operating Company for their personal use.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 251 - Subsection 251(1) - Paragraph 251(1)(c) two individuals jointly controlling a company were acting in concert respecting the payment of dividends 299

Nelson v. The Queen, 2017 TCC 178 (Informal Procedure)

agreement between husband and wife established that joint bank debt was borne on 50-50 basis

Lafleur J found that although each of a husband and wife was fully liable to the bank for all amounts advanced to either of them under their joint line of credit, an oral agreement between them, that each had 50% responsibility for the amounts drawn down under the line of credit, should be respected for tax purposes. Accordingly, in dealing with the ETA equivalent (s. 325(1)) of ITA s.160, she found that ½ of the amounts drawn down under the line of credit to fund the husband's company constituted an advance by the wife of money borrowed by her, so that ETA s. 325 did not apply when her husband later transferred real estate to her to pay down that advance.

Words and Phrases
Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 325 - Subsection 325(1) the agreement between two co-borrowers as to their respective responsibility for joint loans governed for tax purposes 330

Kvas v. The Queen, 2016 TCC 199

involuntary dissolution did not render the corporation a transferor

The general contracting company (“CIA”) of two brothers was dissolved in January of 2008 (the “Dissolution Date”) for failure to file Ontario corporate tax returns. Although “upon such dissolution, the property of CIA technically and legally escheated to the provincial Crown” (para. 40), in fact, a CIA bank account was thereafter used to pay various CIA creditors. The Minister assessed the brothers under s. 160 on the basis of alleged property transfers to them after the Dissolution Date.

Bocock J found that there were no actions of CIA that constituted a transfer under s. 160, stating (at paras 28, 33, 40):

[S]ection 160 requires a transfer by a transferor. … [T]here is no case law that suggests a transferor includes a person who ceases to exist and has not otherwise undertaken some act or omission which transfers property prior to its… demise or dissolution. …

After its dissolution, CIA could not legally, and … did not factually direct, author or contemplate such a transfer… .

…There is no jurisprudence which suggests that the act or intention of a transferor (as opposed to that of a transferee) is unnecessary in order to engage section 160.

Words and Phrases
Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 84 - Subsection 84(2) involuntary dissolution was not a s. 84(2) winding-up 168

594710 British Columbia Ltd. v. The Queen, 2016 TCC 288, rev'd 2018 FCA 166

indirect transfer of property to taxpayer did not entail departure from FMV

The taxpayer was a holding company and Canadian-controlled private corporation which wholly-owned a “Partnerco” holding a 24.975% limited partnership interest in a strata development partnership (“HLP”) which, by May 25, 2006, had realized income of $13 million from the sale of most of the strata units, and was projected to realize another $863,546 of profit from the sale of the remaining six units. The three siblings of the shareholder of the taxpayer (“Rossano”) held their interests in HLP under the same Holdco-Partnerco structure, and the general partner, holding a 0.1% interest, was held by Rossano.

On May 25, 2006, HLP lent $8.5 million ($2.1 million each) to the four Partnercos, and then each Partnerco immediately declared a stock dividend of preferred shares with a paid-up capital and redemption amount of $2.1 million to each Holdco, with each Partnerco using the proceeds of such loan to redeem the preferred shares. Each Partnerco then paid a further stock dividend of preferred shares in the amount of the anticipated gain on the unsold strata units (for which it had been granted a put option by the developer).

On May 29, 2006, each Holdco sold its shares of its Partnerco to an arm’s length public corporation (“Nuinsco”) with substantial resource pools (and Nuinsco acquired the shares of the general partner for $1.) HLP then lent its cash of $4.4 million to Nuinsco.

On May 30, 2006, each Partnerco was wound up into Nuinsco and Nuinsco was admitted as sole limited partner of HLP. On May 31, 2006, HLP allocated its income of $12.1 million to its partners (mostly, Nuinsco). HLP then sold its remaining strata units (mostly to the developer), and HLP was dissolved.

In finding that s. 160 did not apply to the transactions, Rossiter CJ stated (at paras. 136-138, 147):

The purchase by Nuinsco of the common shares and the preference shares issued in the Second Stock Dividend is, in my view, an indirect transfer of property from Partnerco to the Appellant, when considered in conjunction with the steps leading to and including the Nuinsco Loan. …

HLP loaned an amount in question to Nuinsco that would have been otherwise able to be distributed to Partnerco and its fellow partners. As a result, the Partnercos indirectly transferred property to Nuinsco and then on to the Appellant and the other Holdcos. …

The question is therefore whether Partnerco transferred this property for less than FMV. …

The Appellant has shown that at the end of this series of transactions, Partnerco was left none the poorer. It remained a limited partner in HLP right upon until its winding-up, while the assets of HLP changed from cash to a promissory note of the same value. As a result, I cannot conclude that there would have been an underlying liability under section 160.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 245 - Subsection 245(2) GAAR reassessment must reflect the abuse 315
Tax Topics - Income Tax Act - Section 245 - Subsection 245(4) GAAR did not apply to the sale to a lossco of partner corps with pending condo sale profit allocations 660
Tax Topics - Income Tax Act - Section 96 - Subsection 96(1) - Paragraph 96(1)(f) LP profits can be allocated to purchasing partner at year end 278

Baker v. The Queen, 2016 TCC 120 (Informal Procedure)

CRA assessed under s. 160 so as to give credit for Quebec tax paid under the Quebec equivalent

The taxpayer’s mother died in 2008, leaving her four children equal undivided shares in her residence in Quebec. Prior to the distribution to them of such shares in January 2016, a brother of the taxpayer (Robert) died in 2011. Robert’s ¼ interest was transferred equally to the three surviving siblings immediately after the distribution to the four beneficiaries of their respective shares of the residence. Unpaid federal income taxes of Robert exceeded the value of his ¼ interest in the residence. The taxpayer was assessed under s. 160 for the difference between the value of the property interest transferred to her by Robert and an amount paid by her to the ARQ pursuant to the Quebec equivalent of s. 160. The taxpayer relied in part on a stipulation in her mother’s will that the assets bequeathed could not be seized because of any of her heirs’ debts.

Smith J stated (at para. 37):

[T]he transferor’s intention to avoid a tax debt is not relevant, nor is his or her knowledge of the existence of a tax debt.

Smith J also found that the exemption clause in the will had no effect, and concluded (at paras 44 and 45):

I find that the overall evidence clearly establishes that she received property following a transfer of the residence without consideration from her brother, and that the four criteria set out in Livingston … have been met.

…[I]f she had obtained a clearance certificate prior to the transfer of her brother’s undivided share (which had been done for {her late mother’s] succession), she would have known of the tax debt and could have acted accordingly.

Smith J adverted (at para. 41) to the fact that, technically, the taxpayer could have been assessed by each of CRA and the ARQ under s. 160 and its Quebec equivalent so that, depending on the numbers, she could have been assessed for taxes equalling double the value of her brother’s property transferred to her. However, such double taxation did not arise here as CRA only assessed for the difference between the value of the property received by her and the amount she paid to the ARQ.

McDonald v. The Queen, 2015 DTC 1106, 2015 TCC 73

Holding funds in trust no defence for hiding partner’s assets from CRA

The taxpayer cohabitated with the tax debtor. The tax debtor transferred money to the taxpayer, which she deposited in a bank account opened for this purpose. She was given no consideration for the funds. At the time, the appellant was aware that the taxpayer was having “issues” with CRA; the taxpayer had worked as an independent contractor and had failed to pay any tax from his business and had failed to file tax returns for several years.

Rip J. stated (at paras. 25):

It is obvious from reading subsection 160(1) that the purpose of Parliament enacting subsection 160(1) was to prevent a transferor indebted to the Crown from hiding his or her assets from the Crown.

In dismissing the appeal, Rip J. further commented (at para. 28):

Ms. McDonald knew full well that Mr. Chapman had “issues” with the CRA and cooperated with him to assist him to hide his funds from the CRA by opening a bank account in her name to hold the money. … That she may have held the funds in trust for Mr. Chapman does not assist her: subsection 160(1) is rather specific on this point.

M. Soutar Decor 2000 Ltd. v. The Queen, 2016 TCC 62 (Informal Procedure)

transfer from guarantor by virtue of seizure of security by tax debtor’s bank

A line of credit initially provided in 2001 by a bank to the taxpayer (“Soutar Décor”) was guaranteed by the father (“Ronald”) of Soutar Décor’s shareholder, with the guarantee initially secured by a registered charge on Ronald’s house and, from 2002 onwards, also by a GIC (the “GIC Deposit”) of Ronald. At Ronald’s death in February, 2007 he owed a “Tax Debt” of approximately $20,000.). On June 26, 2007, the bank realized upon the GIC Deposit and applied its $75,000 balance against Soutar Co.’s outstanding indebtedness under the line of credit.

Soutar Décor’s submitted that for s. 160 purposes there was a transfer of property by Ronald to Soutar Décor in 2001 (when he had no tax debt) rather than on June 26, 2007. Bocock J. stated (at para. 17):

A guarantee and delivery or pledge of security to a bank does not constitute a transfer because the pledged security remains the guarantor’s: Linke v. Her Majesty The Queen, [1992] T.C.J. No. 669 at paragraphs 3 and 5. Until a guarantee is demanded and the security is converted, the guarantee remains contingent and unenforced: MacLeod v. Her Majesty The Queen, 2012 TCC 379 at paragraph 17. After the June 2007 deposit into transferee, Soutar Décor’s bank account, Soutar Décor then received legal and beneficial ownership. This constituted both the moment and consummation of the transfer: MacLeod [2012 TCC 37] at paragraphs 19 and 20. It is at this time of seizure, realization and payment of the GIC Deposit proceeds that the benefit is conferred and completed. Concerning the intention of Ronald or Soutar Décor as to timing, actions or effect, section 160 is clear: intention is of no import beyond gauging the adequacy of consideration: Wannan v. Canada, 2003 FCA 423 at paragraph 3…

Locations of other summaries Wordcount
Tax Topics - General Concepts - Payment & Receipt seizure of a guarantor’s security constituted a transfer 46

Lupien v. The Queen, 2016 TCC 2

double application of s. 160 re asset sale for excess consideration

Shortly before a corporation (“Antoni”) sold all its assets to a third party, it acquired all the assets of a corporation (“LCR”) owned by its shareholder’s brother, which had been distributing one of its imported product lines in North America. Lamarre ACJ found that the assets so acquired from LCR did not include any valuable goodwill, so that the consideration paid by Antoni was inflated. Accordingly, s.160 applied to make LCR liable for Antoni’s unpaid taxes (jointly with LCR’s shareholder given subsequent dividends to him by LCR).

Locations of other summaries Wordcount
Tax Topics - General Concepts - Fair Market Value - Other distributor earning significant relative profits had no transferable goodwill where no evidence of long-term distributorship agreement 222

Kuchta v. The Queen, 2015 DTC 1229 [at 1509], 2015 TCC 289

widow was "spouse"

The taxpayer was the sole designated beneficiary of two RRSPs held by her husband at his death in 2007. When his estate failed to pay an assessment respecting his 2006 year, the Minister assessed the taxpayer for the same amount under s. 160(1). In finding that this transfer after her husband’s death constituted a transfer to the deceased’s spouse (so that the s. 160(1) assessment was valid), Graham J noted that

  • although dictionary definitions and the legal meaning of spouse “clearly contemplate a relationship between two living people” (para. 22), “people routinely use the word ‘spouse’ to refer to the surviving member of a coupled” (at para. 23),
  • some (but not all) provisions referred to “spouse” to mean a widow or widower (ss. 146(8.91) and 70(6)) or to be inclusive of widows and widowers (ss. 72(2) and 148(8.2)), and
  • the alternative interpretation “would absurdly provide relief only to those individuals whose spouses had failed to comply with the tax system during their lifetimes” - and given that “transfers of property to widows and widowers under a will are clearly caught by subsection 160(1)” (para. 74), such a system would “irrationally…only provide relief if a tax debtor had a RRSP” (para. 72).

He noted that using the colloquial meaning of "spouse" was not necessarily transferable to other provisions with a different context and purpose (para. 79).

Words and Phrases

Strachan v. The Queen, 2014 DTC 1025 [at 2645], 2013 TCC 362

shares issued from spouse's private corporation

The taxpayer was issued shares from her husband's private corporation ("Northside"), in an amount that gave her approximately 98% of the stake in the corporation. Rip CJ found that this was a transfer "in any manner whatever" to the taxpayer from her husband, for the purposes of s. 160(1). After citing Kieboom, he stated (at para. 38):

[Mr. Strachan] ... divested himself of the rights attached to his shares in the same [98%] proportion (i.e. his right to vote as sole shareholder, to receive 100 percent of the dividends should they be declared and to receive all the remaining property of the corporation on dissolution). The fact that Mr. Strachan accomplished the transfer of shares to the appellant by causing Northside to issue them should make no difference.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Ownership beneficial ownership of dividends 76

Mignardi v. The Queen, [2013] GSTC 39, 2013 TCC 67 (Informal Procedure)

onus on Minister where taxpayer had no financial involvement

The Minister assessed the appellant for director's liability in respect of a corporation that had not remitted net tax for reporting periods ending on and after July 1, 2000. The appellant had been excluded by the franchisor of the corporation's business from any input into the financial affairs of the corporation after October 2001, and from any involvement at all after July 2002. The applicant had no access to the corporation's records, and CRA would not provide any background as to how it had computed the corporation's liability. Paris J found that this was sufficient to shift onto the Minister the burden of proving the correctness of the corporation's assessment, and that this burden had not been discharged.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 323 - Subsection 323(1) onus on Minister where taxpayer had no financial involvement 116
Tax Topics - Excise Tax Act - Section 323 - Subsection 323(3) failure to monitor other director 73
Tax Topics - Excise Tax Act - Section 323 - Subsection 323(5) no constructive resignation 65
Tax Topics - General Concepts - Onus onus on Minister where taxpayer had no financial involvement 116

Kiperchuk v. The Queen, 2013 DTC 1088 [at 486], 2013 TCC 60

The taxpayer was the designated beneficiary of her husband's RRSP, and received the RRSP proceeds upon his death, and was assessed for his unpaid taxes under s. 160. Lamarre J found that the taxpayer and her husband were not related persons under s. 251(1)(a) at the time of transfer because their marriage was dissolved on the husband's death, so that at the time of transfer they were not related by marriage under s. 251(2)(a). The taxpayer and her husband also were not related under s. 251(1)(b), because the RRSP devolved to the taxpayer directly by operation of Ontario's Succession Law Reform Act, rather than forming part of the husband's estate.

In response to a submission of the Crown that the taxpayer was factually not at arm's length with her deceased husband because the relevant time was that at which she was designated as his RRSP's beneficiary, Lamarre J stated (at para. 29) that there was nothing in the wording of s. 160(1):

that relates the relationship between the transferor and the transferee to any moment other than that of the transfer of the property (or a moment after the transfer in a case where the transferee has since become the transferor's spouse. The subsection refers throughout to the act of transferring and the time of the transfer, without specifying that other moments in time, previous to the transfer, could be contemplated for the purpose of its application to the transferee.

As the transfer to the taxpayer at arm's length, s. 160(1) did not apply.

Martin v. The Queen, 2013 DTC 1061 [at 325], 2013 TCC 38

Boyle J found that the taxpayer's husband had a substantial accrued debt to the taxpayer relating to unpaid overtime from his medical practice business, and unpaid rent for his use of her property in the practice. This debt exceeded the amounts transferred to her from her husband, and thus offset any possible liability she would otherwise have had under s. 160 in respect of her husband's tax debt.

Brauer v. The Queen, 2013 DTC 1014 [at 74], 2012 TCC 382

The taxpayer's son had a tax debt when he deposited his pay cheques to her bank account, which he later withdrew in full. Bocock J found that the deposits were a transfer for the purposes of s. 160(1), and that the undertaking and understanding that the taxpayer would not access the deposited funds did not represent valuable consideration: "her mere moral obligation not to access the funds does not create a recognizable legal prohibition from doing so" (para. 13). Consequently, she was liable under s. 160 for the amount of the funds deposited to her account.

MacLeod v. The Queen, 2013 DTC 1010 [at 60], 2012 TCC 379

The taxpayer held the matrimonial home. Her husband accumulated a tax debt for several years while he deposited amounts into the taxpayer's bank account which she used to pay the mortgage. V.A. Miller J. dismissed the taxpayer's contention that no transfer of funds had taken place. She could not be a "mere conduit" for her husband's mortgage payments because she was the only mortgagor named on the mortgage, and he was only a guarantor whose guarantee had not been called by the bank. Moreover, a deposit of funds into an account constitutes a transfer (Livingston).

Sokolowski Romar v. The Queen, 2013 DTC 1003 [at 24], 2012 TCC 104

Angers J. found the taxpayer liable for the value of the family residence transferred from her husband, whose tax debt was approximately $900,000. The taxpayer contended that she paid valuable consideration pursuant to a "deed of partition," dated 20 April 1989, to change the distribution of their property between them under the "change of matrimonial regime" provisions under the Civil Code. However, the house was transferred under a separate deed of sale dated 30 June 1988, under which the taxpayer was to pay $1 and "other good and valuable consideration."

In rejecting the taxpayer's contention, Angers J. found that:

  • the deed of sale was not part of any matrimonial regime, given inter alia that it contained a provision that specifically denied that there was a matrimonial regime;
  • the consideration was not fixed at the time of transfer; and
  • no consideration was in fact paid, and no change in matrimonial regime took place.

Nandakumar v. The Queen, 2012 DTC 1279 [at 3827], 2012 TCC 338

The taxpayer received $765,350 in real properties from his father, who had a tax debt of $4,225,985. Bocock J. found that the taxpayer's claim that he had paid consideration in the form of loans to his father and related persons was dubious. Among the reasons listed were that the taxpayer did not have the capacity to lend in the purported amount, and the lack of any evidence of the loans beyond the taxpayer's own testimony.

Lapierre v. The Queen, 2013 DTC 1090 [at 495], 2012 TCC 299

The taxpayer's tax-indebted father gave her $120,000. Angers J. accepted her position that $110,000 of that amount was meant to benefit the taxpayer's sister and her father's business corporation, so her liability under s. 160(1) was limited to $10,000.

Bragg-Smith v. The Queen, 2012 DTC 1227 [at 3628], 2012 TCC 252

The taxpayer held an account in the name of her father's business. The father owed approximately $500,000 in taxes. He bought some germanium-rich waste for $31,762.50, and sold it for two payments of $43,200 and $24.817.74. He had the customer make the first payment into the taxpayer's account, and three days later she paid $31,762.50 to the supplier.

The taxpayer claimed that she had an enforceable verbal agreement to make the $31,762.50 payment, and therefore her $43,200 liability under s. 160(1) should be reduced by $31,762.50 of consideration. Hogan J. found this claim to be credible. The payments into and out of the account concerned the purchase and sale of the same germanium waste, and the two payments were made within three days of each other. It was a "reasonable inference" to find an enforceable verbal agreement, rather than the mere "moral obligation" contended by the Minister.

Hennig v. The Queen, 2012 DTC 1152 [at 3353], 2012 TCC 141 (Informal Procedure)

The taxpayer was unsuccessful in arguing that the limitations period could shield her from liability under s. 160(1), in respect of a dividend received from her wholly owned tax-indebted corporation. Section 160 does not have a limitations period.

Leclair v. The Queen, 2011 DTC 1328 [at 1859], 2011 TCC 323

The taxpayer's father transferred real property to her in June 2006 without her knowledge. She discovered the transfer in December 2008 and transferred the property back on 26 February 2009 after obtaining legal advice. Angers J. found that the taxpayer was not liable under s. 160 for her father's unpaid taxes. The common law on property provides that an unwitting recipient of a gift can, as the taxpayer had done, repudiate the gift retroactively (para. 16). There had therefore been no transfer of property, and hence no liability under s. 160. Angers J. also noted that the Court of Appeal's obiter dictum in Biderman, that a failed testamentary gift could not give rise to s. 160 liability, extended to inter vivos gifts (para. 19).

Locations of other summaries Wordcount
Tax Topics - General Concepts - Ownership retroactive repudiation of gift 86

Lacroix v. The Queen, 2011 DTC 1167 [at 919], 2011 TCC 111

The taxpayer's brother, who was insolvent and facing a large tax debt, deposited $15,000 into a bank account of the taxpayer. The brother periodically withdrew from the account to pay for living expenses. Tardif J. found that, while the sister was apparently not aware that she was participating in a scheme to conceal assets from collection (she did not inquire), she was nevertheless liable under s. 160(1).

The taxpayer argued that she held the funds in the capacity of mandatary (the Quebec equivalent of agent). While Tardif J. found that no such relationship was present, he stated at para. 40 that a transfer of property from mandor to mandatary is not a transfer for the purposes of s. 160, as such a transfer does not divest the mandator of ownership of the property transferred.

De Sanctis v. The Queen, 2010 DTC 1102 [at 3032], 2010 TCC 118

The taxpayers lived together with their father in a condominium which he had purchased but title to which he conveyed to them. Bonner J. found that the contributions of the taxpayers to the shared costs of running the household were unrelated to the transfer to them of the condominium and, therefore, did not represent consideration for the transfer.

Nguyen v. The Queen, 2011 DTC 1059 [at 324], 2010 TCC 503

The taxpayers were the wife and children of a man who died intestate and insolvent, with a tax debt of approximately $270,000. The taxpayers deposited the proceeds from two life insurance policies (which were payable to designated beneficiaries rather than to the estate) into an account in the estate's name. Angers J. found at para. 41 that this labeling of the account was a mistake and that the money deposited to the account was not part of the estate. Consequently, withdrawals made from that account were not a "property transfer" under s. 160.

Gagnon v. The Queen, 2011 DTC 1030 [at 128], 2010 TCC 482

see also Richard v. The Queen, 2011 DTC 1114 [at 614], 2011 TCC 136)

The taxpayer's common-law partner, who owed tax, transferred to the taxpayer his 50% interest in the house they shared, but reserved a right to use the house. By operation of s. 160, the taxpayer became jointly liable for tax the partner owed at the time of transfer. In determining the amount under s. 160(1)(e), Archambault J. found that "the amount the transferor is liable to pay in respect of the taxation year in which the property was transferred" under s. 160(1)(e)(ii) did not exclude the interest that accrued to the transferor after the taxation year in question, stating at para. 19 that "Parliament clearly intended, by adding the words 'or in respect of', not to impose any such limit."

Archambault J. pointed out at paras. 27-28 that the taxpayer's liability was not a distinct tax debt, so no interest accrued on her liability beyond the interest accruing to the transferor.

Crischuk v. The Queen, 2010 DTC 1184 [at 3427], 2010 TCC 276

Sums which the taxpayer's husband transferred to their joint bank account in order to make payments on a mortgage was secured on the family home, which is owned by the taxpayer, and to make payments on vehicle leases registered to the taxpayer, constituted transfers of property to her for purposes of s. 160(1).

Submissions made that full consideration was given in the form of the taxpayer's legal entitlement to be supported by her husband, and the use by her husband of a room in the home as an office, were inconsistent with the Yates decision. Furthermore, although the taxpayer performed household chores, these "were more in the nature of a donation rather than as consideration for the property transferred" [para. 26].

Clause v. The Queen, 2010 DTC 1298 [at 4069], 2010 TCC 410 (Informal Procedure)

Facing insolvency, the taxpayer's husband made a proposal in 2003, under the Bankruptcy and Insolvency Act, providing for monthly payments to his creditors. The creditors, including the CRA, agreed. The husband transferred a house to the taxpayer, and subsequently defaulted on the BIA agreement. The creditors, including the CRA, agreed to a second proposal which effectively picked up where the first proposal left off.

Boyle J. found that, while the second proposal was intended as a continuation of the first, it was nevertheless a distinct proposal. Accordingly, when the taxpayer's husband defaulted on the first agreement, he was again liable to the CRA for taxes owing. By operation of s. 160(1), the taxpayer became jointly and severally liable with her husband for all the taxes owing, and her liability was not later canceled by the second BIA agreement with the CRA.

Provost v. The Queen, 2010 DTC 1009 [at 2574], 2009 TCC 585

In response to a submission of the taxpayer (para. 8) "that subsection 160(1) ... does not include interest" McArthur, J. stated that "with respect to interest, it is true that this section does not apply to interest, but the deeming provisions in the Regulations to the Act clearly state that interest is included in section 160 for transfers".

Leblanc v. The Queen, 2008 DTC 4902, 2008 TCC 242

The taxpayer acquired the family home in consideration for payment by way of set-off against the amount of a loan that she had made to her husband and her assumption of the mortgage on the property. However, in fact, the mortgage payments continued to be made by her husband. In finding that there had been adequate consideration for s. 160(1) purposes, it was noted that the taxpayer had provided her husband with equivalent consideration by covering other family expenses.

Siracusa v. The Queen, 2003 DTC 2106, 2003 TCC 941

The taxpayer, who owned one-third of the shares of a corporation that paid a dividend to its shareholders, and was a director and bookkeeper of the corporation, was found not be acting in concert with the other two directors (who were the remaining shareholders) when the directors with her assent declared and paid a dividend given that the other two directors largely ignored her when they were not in conflict with her. Accordingly, there was no common mind amongst the three directors. S.160(1) did not apply to the payment of the dividend to the taxpayer.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 251 - Subsection 251(1) - Paragraph 251(1)(c) no acting in concert with taxpayer who was ignored 84

Jurak v. The Queen, 2003 DTC 557 (TCC)

A company ("Snazz") paid a dividend to a company ("151041") with which it did not deal at arm's length. 151041, which did not deal at arm's length with the taxpayer, sold a house to the taxpayer for a sale price lower than the home's fair market value. In finding that a portion of the tax liability of Snazz could be assessed against the taxpayer under s. 160, Lamarre Proulx T.C.J. found (at p. 562) that "the transferee may himself become a transferor subject to subsection 160(1) of the Act if, at the time of the second transfer, he himself is a tax debtor liable either on his own account or jointly and severally with the first transferor"; and that the tax liabilities that may be transferred under s. 160 include those that have not yet been reflected in an assessment given that "it is a recognized principle in tax law that it is not the assessment that creates a tax liability, but the application of the Act".

Fallis v. The Queen, 2002 DTC 1242 (TCC)

Following an assessment of the taxpayer under s. 160 she alleged that there had been a transfer of a one-half interest in a property to her from her husband in the summer of 1991 when there was a discussion between them that she should receive the equity in the property rather than, as alleged by the Crown, three years later when, on a sale of the property, the husband signed a direction authorizing the purchaser to pay the closing proceeds to her. McArthur T.C.J. stated (at p. 1244):

"It takes more than an intention or uncertain conversation to transfer an interest in real estate. The law of contract requires a clear statement of transfer, acceptance and delivery."

Locations of other summaries Wordcount
Tax Topics - General Concepts - Effective Date 122

Cox v. The Queen, 96 DTC 1690 (TCC)

The fact that a transfer of property from the taxpayer's spouse to the taxpayer was void against the trustee in bankruptcy of the spouse did not prevent the application of s. 160(1) to the taxpayer given that the proper interpretation of the Bankruptcy Act was that the trustee had to do something to render the transaction void, which did not occur.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Illegality 64

Caplan v. The Queen, 95 DTC 709 (TCC)

bankruptcy order of discharge retroactively released transferor of tax liability

The taxpayer's husband contributed $5,500 to her RRSP on March 1, 1986. Her husband's income tax liability for his 1986 taxation year and preceding years would prove to be in excess of $43,000.

In finding that an absolute discharge received by the taxpayer's husband on January 25, 1989, releasing the husband from all claims provable on bankruptcy, eliminated any liability of the taxpayer under s. 160(1), Bell TCJ. noted (following Simard-Beaudry) that the taxpayer's husband was liable for taxes in respect of his 1986 year at the time of the March 1, 1986 transfer even though he had not yet been assessed, and also noted that s. 160 now spoke in the present tense (the transferor "is liable to pay"), with the result that subsequent elimination of the husband's liability eliminated the taxpayer's liability.

Delisle v. The Queen, 95 DTC 650 (TCC)

Funds that the taxpayer's son had transferred into a dormant bank account of the taxpayer were held by her as agent for her son, with the result that there had not been a "transfer" for purposes of s. 160(1), i.e., "to convey or make over (title, right or property) by deed or legal process".

Words and Phrases

Acton v. The Queen, 95 DTC 107 (TCC)

The taxpayer was not liable under s. 160(1) in respect of a cash transfer of $9,100 made to her by her husband because a prima facie case has been established that non-capital losses of her husband that Revenue Canada had neglected to carry back to the taxation year in question would have eliminated the tax liability to which the s. 160 reassessment related, and because it was established that the payment represented a repayment of funds arising from the sale of the taxpayer's interest in the matrimonial home which had been invested by her husband in certain mutual funds before they were sold.

Montreuil v. The Queen, 95 DTC 138 (TCC)

The appellant received a bequest under the will of his father, who died in the Cayman Islands while owing tax and interest to Revenue Canada. In finding that s. 160(1) applied to the appellant, Dussault TCJ. rejected submissions that s. 160 required an intention to evade tax obligations on the part of the transferor and that s. 160 did not apply to transfers by operation of law and not as a result of a positive act of a taxpayer. Dussault TCJ. stated (p. 138) that "transferring does not necessarily imply a positive act by the transferor and neither does it require that a specific action be performed when alive."

Although the transfer occurred when the appellant's father died rather than when the bequest was paid, the appellant was liable for interest that accrued after the date of death (until the total reached the sum bequested by him): interest that compounds until full payment of an amount owing for a specified taxation year that has transpired prior to the transfer constitutes an amount that the transferor (in this case, the deceased) is required to pay under the Act "in respect of" that preceding taxation year.

Words and Phrases

Davis v. The Queen, 94 D.T.C 1934, [1994] 2 CTC 2033 (TCC)

At the beginning of its 1985 and 1986 calendar taxation years, a corporation declared a dividend to its two shareholders (husband and wife). Such dividends were paid by monthly "draws". McArthur TCJ. found that at the time of declaration of the dividends, the shareholders (who received only a nominal salary from the corporation) had committed their future services to the benefit of the corporation's business and that in fact the dividends were not paid until the services were rendered. Accordingly, the dividends were paid for valuable consideration, with the result that s. 160(1) did not apply.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 160 - Subsection 160(2) 55

Savoie v. The Queen, 93 DTC 552, [1993] 2 CTC 2330 (TCC)

It was found that the taxpayer had a 50% interest in property transferred to her by her husband on the basis of there being either a resulting trust or constructive trust in relation to such property. Accordingly, s. 160(1) applied only to the beneficial interest in the property that was transferred to her by her husband.

Algoa Trust v. The Queen, 93 DTC 405, [1993] 1 CTC 2294 (TCC)

stock dividend not a transfer

After finding that s. 160(1) applied to a cash dividend paid by a private corporation to its shareholder, Rip J. went on to find that s. 160(1) did not apply to a stock dividend given that the issue of shares is not a "transfer" because the corporation has not divested itself of its property, and given that there is no transfer of property when a dividend is declared by the directors, as the funds represented by the dividend are under the control of the corporation until the corporation pays the dividend.

Words and Phrases

Groupe d'Investissement Savoie, Lavoie Inc. v. M.N.R., 92 DTC 1531, [1992] 1 CTC 2355, [1992] 1 CTC 2355 (TCC)

The taxpayer acquired the personal residence of a related individual in consideration for issuing non-voting preference shares which were redeemable by the taxpayer but not retractable by the individual. In finding that the shares had no fair market value for purposes of s. 160, Dussault J. stated (p. 1541):

"The restrictions encumbering the preferred shares and the absence of control thus prevented anyone, including anyone who were to seize all of the shares held by Mr. Pierre Savoie [the individual], from recovering any value whatever in respect of the property transferred to [the taxpayer], since the redeeming of class G shares received in consideration could not have been obtained by a holder who did not have legal control, whether direct or indirect."

Locations of other summaries Wordcount
Tax Topics - General Concepts - Fair Market Value - Shares 126

Winsor v. MNR, 91 DTC 1170, [1991] 2 CTC 2378 (TCC)

In finding that the appellant could be assessed under s. 160 respecting the alleged "transfer" to her by her husband of a 1/2 interest in the matrimonial home notwithstanding a subsequent judgment that the conveyance was void pursuant to the Fraudulent Conveyances Act (Newfoundland), Rip J. applied authority "that a conveyance that is fraudulent and void as against creditors is not absolutely void but voidable and is good as between the parties to it" (p. 1172).

Administrative Policy

16 August 2017 Internal T.I. 2015-0622751I7 - Part XIII Tax on Benefit to Non-resident

use of s. 160 to collect s. 15(9) liability of indirect FA on dividends paid to Canco

Using funds generated from operations, Opco, which is a foreign affiliate both of its parent (Canco) and grandparent (Can Holdco ), subscribes for equity of Finco (another FA of Canco) which, in turn, makes a non-interest bearing loan to Foreign Sub, which is a direct subsidiary of the parent of Can Holdco (Foreign Parent). As this loan is repaid within two years, s. 90(6) does not apply to the loan. Did the interest-free loan generate Part XIII tax and, if so, who had the obligation to collect and remit the tax – and how could it be collected? After finding that s. 15(9) and s. 215(1) imposed a liability on Finco for having failed to remit Pt XIII tax on in imputed benefit relating to the absence of interest on the loan, the Directorate then stated:

Opco could potentially be jointly liable to the tax under subsection 160(1) if Finco pays a dividend to Opco in the taxation year in which Finco becomes liable to pay such tax or in a subsequent taxation year, to the extent of the amount of the dividend or the amount of such tax, whichever is the lesser. Similarly, if Opco receives a dividend from Finco and then pays a dividend to Canco in the taxation year in which Opco becomes liable to pay the tax under subsection 160(1) or a later year, then Opco would be considered the “transferor” of the property under subsection 160(1) and Canco, as the transferee of the property, would be jointly liable to the tax with Opco, to the extent of the amount of the dividend or the amount of the tax, whichever is the lesser.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 15 - Subsection 15(9) s. 15(9) applies to interest-free loan between two foreign affiliates 285
Tax Topics - Income Tax Act - Section 215 - Subsection 215(1) CFA liable for failure to "withhold" and remit Pt XIII tax on interest-free benefit on loan to NR sister of its Cdn grandparent 127
Tax Topics - Income Tax Act - Section 227.1 - Subsection 227.1(1) s. 227.1 liability can extend to NR directors of a CFA 176
Tax Topics - Income Tax Act - Section 214 - Subsection 214(3) - Paragraph 214(3)(a) benefit from interest free loan by CFA to Canco sister deemed to be a dividend subject to Pt XIII tax 177
Tax Topics - Income Tax Act - Section 80.4 - Subsection 80.4(2) extra-territorial application of s. 80.4(2) 134

12 June 2012 June STEP Roundtable, 2012-0442681C6 - STEP CRA Roundtable – June 2012 - Question 2

In response to a question as to whether a s. 160 would a apply to a butterfly reorganization (which typically entailed two share redemptions giving rise to deemed dividends), where the reorganization was intended to divide family assets between spouses in a divorce situation, CRA stated:

[I]t would be a question of fact as to whether subsection 160(1) would apply to any of the transfers of property that would form part of the transactions involved in the reorganization. Subsection 160(1) would not apply to any transfers of property where fair market value consideration is received in return.

Where subsection 160(1) is applicable to a particular situation, an exception may be available in subsection 160(4) in respect of property transferred by a taxpayer to the taxpayer's spouse (or common-law partner) pursuant to a decree, order or judgment of a competent tribunal or pursuant to a written separation agreement if, at the time the property was transferred, the taxpayer and the spouse were living separate and apart as a result of the breakdown of their relationship.

7 October 2011 Roundtable, 2011-0412201C6 F - Art. 160 - dividende en actions suivi d'un rachat

s. 160 could apply to a stock dividend followed by a redemption of the stock dividend shares

A corporation pays a preferred share stock dividend on its common shares and then redeems the preferred shares for their redemption value. Given that such redemption value equals the shares’ FMV and that Algoa Trust found that s. 160 does not apply to a stock dividend, does it follow that s. 160 could not be applied? CRA responded:

[T]he expression "transferred property, either directly or indirectly, by means of a trust or by any other means whatever" in subsection 160(1) must be interpreted broadly and allows the application of the provision to situations where multiple steps are performed. …Where the shares of a corporation issued pursuant to a dividend declared by the corporation are subsequently redeemed, the existence of a transfer subject to subsection 160(1) is an issue that requires the analysis of all the facts of the particular situation.

If it is determined that the transactions result in a transfer subject to the application of subsection 160(1), the extent of the joint and several tax liability of the transferee will, in general, then have to be determined pursuant to 160(1)(e). In those circumstances, we are of the view that the determination of the existence of particular consideration for a property and the FMV of that consideration should be made in light of the particular facts of the situation under analysis. Regarding the situation submitted, it would be necessary, in particular, to consider that the right of the shareholder to receive payment on the redemption of the shares originates from the fact that these shares were issued in payment of a dividend in respect of other shares.

14 September 1995 External T.I. 9520635 - LIABILITY OF JOINT TENANT FOR DECEASED'S TAXES

S.160(1) will not apply to make a surviving joint tenant liable for the taxes owing by the estate of the other joint tenant arising on the deemed disposition under s. 70(5). CRA stated:

It is settled law that each joint tenant has an identical interest in the whole property and every part of it and that the joint tenants have the right of survivorship in respect of such property. Accordingly, while subsection 70(5) of the Act creates a deemed disposition of the deceased's property for income tax purposes, no actual transfer of property takes place in order to enlarge the interest of the surviving joint tenant. Thus, in the circumstances described and provided that no action has occurred prior to death which would have severed the joint tenancy and created a tenancy in common, it is our view that subsection 160(1) of the Act would not impose a joint liability on the nephew by reason of the nephew's sole ownership of the property previously held in joint tenancy.

Income Tax Technical News, No. 4, 20 February 1995

Notwithstanding that the decision in the Davis case (94 DTC 1934, [1994] 2 CTC 2033) was not appealed by RC, it does not interpret s. 160 as containing a solvency test (i.e., the transferor of property does not have to be insolvent for the provision to be operable), and RC further is of the view that dividends are not normally issued for consideration.

1994 A.P.F.F. Round Table, Q. 23

In response to a question concerning the Algoa Trust case (93 DTC 405), RC stated that it "has issued no general directives on restricting the application of subsection 160(1) following the payment of dividends and intends to apply the provisions of the subsection whenever the circumstances so require".

September 1991 Memorandum (Tax Window, No. 9, p. 18, ¶1458)

S.160 is not limited to Part I and may apply to taxes imposed under other Parts.

The payment of a dividend may constitute a transfer of property for purposes of s. 160.


Bruce Sinclair, "Current Topics in the Taxation of Real Estate Development", 2014 Conference Report, (Canadian Tax Foundation), 12:1-24.

Sale of Projectco before allocation to it by sub LP of condo sale profits (pp. 12:2-3)

Developers often undertake projects in a single-purpose entity ("Projectco") for commercial reasons.…A further level of liability protection can be provided if the project is held in a limited partnership…

[T]he developer will sell the shares of Projectco to another party that has the ability to reduce or shelter the income that will be allocated at the end of the fiscal period of the limited partnership following the sale of the Projectco shares. The sale will take place after the project has been completed and sold, but before profit has been allocated or distributed by the partnership. Typically, the profit will be held by the partnership in the form of cash or a loan to the developer or a related party….

[T]he purchase price for the Projectco shares will exceed the amount by which the value of the assets exceeds the liabilities and the full amount of the latent tax liability of Projectco….

Use of stock dividends to minimize gain to developer (p.12:3-4)

Whether this gain [on the sale of Projectco] is on income or capital account…the developer will seek to minimize [it]…by payment of one or more stock dividends by Projectco in an aggregate amount that will be equal to the purchase price of the Projectco shares less the adjusted cost base (ACB) of the shares, which is assumed to be minimal.

[T]he developer will take the position that the capital gain that would otherwise be realized on the sale of the shares of Projectco at fair market value is attributable to income earned prior to the "safe-income determination time"…

CRA s. 160 challenges to Projectco transactions (p. 12:13)

[T]he manner in which the purchase price is funded could affect the developer's exposure to a challenge to the transaction under section 160 on the basis that property of Projectco has been transferred to the developer for consideration that is less than its fair market value. This is an indirect basis upon which the CRA, has challenged similar transactions. [fn 18: See the Amended Notice of Appeal (filed on February 18, 2014) and the Reply to Amended Notice of Appeal (filed on February 28,2014) in 594710 British Columbia Ltd. v. The Queen, docket no. 2013-4033(IT)G (TCC).]… the discussion considers the developer's position on the basis that Projectco is liable to pay tax on the income allocated from the partnership, and it is this liability that underlies a derivative assessment against the developer under section 160.

Hurdles to a successful s. 160 challenge (pp. 12:13-14)

[H]urdles include the following determinations:

  • whether the payment of the stock dividend constitutes a transfer of property;
  • whether the developer and the acquiror deal at arm's length;
  • whether the sale of the Projectco shares constitutes a direct or indirect transfer of property by Projectco to the developer for consideration that is less than fair market value; and
  • depending upon the timing of the taxation year-ends of Projectco following its acquisition of control by the acquiror, whether Projectco has a tax liability in a taxation year in which property may be considered to be transferred to the developer.

It is clear that the payment of a stock dividend does not constitute a transfer of property…[a]s… stated in Algoa Trust… .

Indirect transfer of property (p. 12:15)

[A]s stated by the Federal Court of Appeal in Medland, "[the words ' other means' in subsection 160(1) of the Act refer to any circuitous way in which property of any kind passes from one person to another." [fn 22: … 98 DTC 6358, at paragraph 20…] Applying such a broad interpretation, a court could find that property of Projectco has been transferred indirectly to the developer. In fact, Medland also stands for the proposition that a reduction of a liability of a non-arm's-length person owed to a taxpayer is a transfer of property. So a reduction of a liability of the developer to Projectco (for example, by way of a loan from Projectco to the developer) as a consequence of the proposed transactions could be considered to be a transfer of property….

Double application of GAAR in 594710 case (p. 12:16)

[I]n a case currently before the Tax Court, [fn 23: 594710 British Columbia Ltd. supra note 18] the CRA has taken the position that section 160 applies to the developer by virtue of the application of GAAR. In fact, the CRA is arguing for a double application of GAAR: in the first instance, to create a tax liability in Projectco; and then to create a derivative liability in the developer based on an abuse of the provisions of the Act having regard to section 160. The CRA's basis for the application of GAAR is that the policy behind section 160 is to "prevent a taxpayer from avoiding a liability under the Act by transferring property to a non-arm's-length person for inadequate consideration." The problem with this characterization of the policy is that it does not reflect the manner in which subsection 160(1) applies. The provision actually looks not at the consideration received by the transferor, but at the consideration paid by the transferee….

Bleiwas, "Defenses to Assessments Under Section 160 of the Income Tax Act", Tax Litigation, Vol. V, No. 1, 1996, p. 291.

Thivierge, "Emerging Income Tax Issues: Substance Over Form Revisited, Section 160 of the Income Tax Act, and Series of Transactions", 1993 Conference Report, c. 4

Fien, "A Directors' Liability and Indemnifications, Section 160 Assessments and Ordinary Course of Business Provisions", 1992 Conference Report, pp.53:27-53:31.

Paragraph 160(1)(c)


Joint Committee, "Avoidance of Tax Debts", 5 April 2022 Joint Committee Submission

Exclusion of s. 251(5)(b) rights

  • There should not be considered to be non-arm's length status by virtue only of rights described in s. 251(5)(b).

Paragraph 160(1)(e)


1455257 Ontario Inc. v. Canada, 2021 FCA 142

s. 160 applied to post-transfer interest

The validity of a s. 160 assessment of the taxpayer turned in part on whether the affiliate from which the taxpayer had received a transfer of property in 2003 should be regarded as having had its taxable income for 2000 reduced by a portion of its non-capital loss for 2002 that the affiliate had not claimed because the taxpayer and the affiliate had not found out about that additional loss until 2011, when the taxpayer made an ATIP request following the s. 160 assessment of it.

The taxable income of the affiliate for 2000 had arisen as a result of a 2005 settlement which had reduced a 2001 non-capital loss (and, thus, reduced the loss carryback to 2000), thereby leaving 2000 unsheltered. Noël C.J. confirmed the finding below that the affiliate had failed to request the carryback of the 2002 loss on a timely basis to the 2000 year.

Noël C.J. also agreed with the Tax Court’s rejection of the taxpayer’s submission that given that the word “pour” used in the French version of s. 160(1)(e)(ii) was narrower than “in respect of” used in the English version, s. 160 did not extend to interest that had accrued on the tax payable by the affiliate subsequent to the 2003 transfer date, stating (at paras. 46-47):

The phrase “in respect of” is broad and all encompassing … and the word “pour” in the French text can have a similarly broad meaning. …

It can be seen that both texts can be read so as to capture interest that accrues on the transferor’s liability from the year of the transfer onwards. This aligns with the purpose of subsection 160(1) which is to allow for the collection of “the total of all amounts” that the transferor is liable to pay under the Act without any distinction as to the makeup of these amounts … and without any time limitation. …

Words and Phrases
in respect of
Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 152 - Subsection 152(4) - Paragraph 152(4)(b) - Subparagraph 152(4)(b)(i) CRA has no arbitrary discretion to reject an s. 152(4)(b)(i) extension request 315
Tax Topics - Income Tax Act - Section 111 - Subsection 111(1) - Paragraph 111(1)(a) carrybacks must be requested by the taxpayer 232

Subparagraph 160(1)(e)(i)


Canada v. Gilbert, 2007 FCA 136

dividend paid by corporation to be valued at the amount paid by it

In two taxation years, at a time when it had an outstanding tax liability, a corporation whose shares were owned equally by Mr. and Mrs. Gilbert, paid dividends of $55,000 to each of them, which they included in their income. In finding that the full amounts declared and paid were the value of property that was transferred to them for s. 160 purposes, Nadon JA stated (at paras. 20 - 22):

In this case, the transferred property is a dividend in the amount of $55,000 received by each of the respondents. Applying the definition of fair market value accepted by our Court in Nash, supra, I find that the fair market value paid to the transferor for the purposes of section 160 is $55,000 for each of the respondents.

It is therefore this amount which must be assessed, i.e. the amount that the Minister could have seized in the hands of the corporation had the transfer not been effected. It appears to me that this determination is the only one possible considering the fact that the fair market value must be assessed by considering that the property is still in the hands of the transferor, namely the respondents. This finding is consistent with section 160 of the Act, the purpose of which is to prevent taxpayers from transferring their property in order to circumvent the Minister’s assessment for unpaid taxes.

Moreover, I am satisfied that the fiscal consequences for the respondents resulting from the transfer are not at all relevant in regard to determining fair market value.

See Also

Valovic v. The Queen, 2020 TCC 101

shareholders’ services were not consideration for dividends received by them for s. 160 purposes

The taxpayers were an electrician and his spouse who were equal shareholders of their corporation and who provided services respectively as electrician and administrator to it. In the various years at issue, the corporation paid dividends to them, and for most years also paid amounts that were employment or business income to them.

In rejecting their submissions that the dividends paid to them were partial consideration for such services so as to oust the application of s. 160 to the dividends, Monaghan J stated (at paras 15, 17, 19):

The evidence that the dividends … were partial consideration for their services … was not very strong. … However, even if I accept that the Valovics reduced the amount of employment income and increased the amount of dividends, and that all payments were made because of the services they provided, the appeals must fail.

… [T]his Court and the Federal Court of Appeal have consistently rejected the argument that consideration may be given for dividends, including in the context of section 160. These decisions accepted and endorsed the view expressed in Neuman that dividends relate to shareholding and rejected the argument that there was consideration for the dividends. …

…Having decided to transform what the Valovics now wish to characterize as consideration for services rendered into a dividend for any reason, including tax advantages, the Valovics must accept the consequences of that decision. …

Mamdani Family Trust v. The Queen, 2020 TCC 93

a taxable dividend was to be valued at its pre-tax amount for s. 160 purposes

An inter vivos family trust received over $3.5 million in taxable dividends from a wholly-owned Canadian private corporation (“Global”) at times that Global had unpaid income tax liabilities. The Trust unsuccessfully submitted that “the amount of income tax payable by the transferee” should be taken into account for the purposes of valuing the amount of such dividends for s. 160(1)(e)(i) purposes.

Sommerfeldt J indicated that he concurred with and was bound by Gilbert, which found that:

where, for the purposes of subsection 160(1) …, the transferred property is a dividend, the amount that should be assessed under that subsection is “the amount that the Minister could have seized in the hands of the corporation had the transfer not been effected.”

Sommerfeldt J further found (at para. 16) that even if Gilbert had not applied, regarding the valuation testimony of the Trust expert witness (Mr. Welsh), he “would not be persuaded that the valuation opinion … represents the proper methodology for valuating the dividends paid by Global to the Trust,” In this regard, he had stated (at paras. 12-13):

In essence, Mr. Welsh based his valuation on the assumption that a corporation that is about to declare, or that has just declared, a dividend may sell that stream of taxable dividend income to an arm’s-length shareholder. …

…It seems to me that, if a corporation has declared a dividend, the dividend belongs to the holder of the share on which the dividend was declared, such that the corporation is not in a position to sell that dividend to someone else. On the other hand, if the corporation has not yet declared a dividend when it purports to sell the dividend income stream, it is not actually selling a dividend (because the dividend is not yet declared), but is selling something else.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Fair Market Value - Other conventional hypothetical sale test of FMV could not be applied to valuing a dividend 267

Subparagraph 160(1)(e)(ii)

See Also

1455257 Ontario Inc. v. The Queen, 2020 TCC 64, aff'd 2021 FCA 142

s. 160(1)(e)(ii) extended to post-transfer interest

The validity of a s. 160 assessment of the taxpayer turned on whether the affiliate from which the taxpayer had received a transfer of property in 2003 should be regarded as having had its taxable income for 2000 reduced by a portion of its non-capital loss for 2002 that the affiliate had not claimed because the taxpayer and the affiliate had not found out about that additional loss until 2011, when the taxpayer made an ATIP request following the s. 160 assessment of it.

The taxable income of the affiliate for 2000 had arisen as a result of a 2005 settlement which had reduced a 2001 non-capital loss (and, thus, reduced the loss carryback to 2000), thereby leaving 2000 unsheltered. Although St-Hilaire J considered that there was no statutory authority for this (given the time limits in s. 152(6)), the CRA policy in such circumstances was to allow a taxpayer (i.e., the affiliate) to increase loss carry backs from other years, to offset the increased 2000 income. It made a request to carry back a loss from 2003 to 2000 (which CRA ultimately acceded to), but this was not enough to fully offset the 2000 taxable income.

Because it did not request the carryback of the additional 2002 loss in 2005 (even though CRA knew about it), this policy was to no avail. Furthermore, it was not possible to somehow treat the original request shortly after 2002 to carryback a smaller loss from that year to 2000 as carrying with it an implied request to carry back a larger loss (“discovered” in 2011) when, as a result of the 2005 settlement, use of that additional loss was now required.

St-Hilaire J also rejected the taxpayer’s submission that given that the word “pour” used in the French version of s. 160(1)(e)(ii) was narrower than “in respect of” used in the French version, s. 160 did not extend to interest that had accrued on the tax payable by 661 subsequent to the 2003 transfer date, stating (at para. 74) that she found “there is no ambiguity in the use of the phrase ‘in respect of’ and further that the English and French versions of the relevant provision have a common meaning,” and also noted (at para. 81) that “Although not directly on point, the jurisprudence in the Federal Court of Appeal supports a finding that a transferee is liable for the interest owing without any limits of the type suggested by the Appellant.”

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 152 - Subsection 152(6) a CRA policy to adjust loss carrybacks, to a reassessed year, beyond the s. 152(6) period, had no statutory authority 698
Tax Topics - General Concepts - Onus onus on taxpayer re assessment underlying a s 160 assessment of the taxpayer 57

Colitto v. The Queen, 2019 TCC 88

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), who was acknowledged to be liable under s. 227.1 for the failure of a corporation of which he was a director (“Precision”) to remit source deductions between February and August, 2008. He became liable under s. 227.1 on January 4, 2011, which was when Precision’s tax debt was executed and returned unsatisfied. On May 2, 2008, Mr. Colitto transferred a 50% interest in real estate (the “Properties”) to the taxpayer, Ms. Colitto for nominal consideration. In 2016, the Minister 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 Properties' 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.”

After finding (at para. 41) that the “taxation year” referred to s. 160(1)(e)(ii) was that of the transferor (Mr. Colitto), so that the issue was whether his s. 227.1 liability was an amount that he was liable to pay “in or in respect of his 2008 taxation year, being the taxation year in which the Properties were transferred,” Visser J stated (at paras. 46, 48, 54-55, 65, 77):

… Mr. Colitto’s liability arose pursuant to section 227.1 of the Act in his 2011 taxation year and was not in respect of his 2008 taxation year. …

Subsection 227.1(2) of the Act provides that a “director is not liable under subsection (1), unless” the preconditions set out in subsection 227.1(2) have been satisfied. …

Furthermore, contextually, when comparing the language of subsection 227.1(2) and 227.1(4) of the Act, the interpretation that subsection 227.1(2) is a timing provision is confirmed.

The interplay of these provisions demonstrates that Parliament never intended that a director’s liability under section 227.1 of the Act for a corporation’s failure should be viewed as absolute the moment that the corporation failed to meet its remittance obligations. In my view, to be able to trace a corporation’s liability to its director under section 227.1 and then ultimately to the director’s spouse under section 160 is an extraordinary remedy, and one that should only be applied if expressly permitted by law.

… I will not follow … Pliskow, Sheck, White No.1 and Filippazzo [finding that the s. 227.1 liability arises at the time of the failure of the corporation to remit rather than when the subsequent collection steps to collect that corporate liability have failed]. It is not apparent that these cases engaged in a textual, contextual and purposive interpretation of how sections 160 and 227.1 of the Act should interact with each other. …

… The mere fact that Precision’s failure occurred within the 2008 calendar year which coincides with Mr. Colitto’s 2008 taxation year does not mean the failure was “in respect of” Mr. Colitto’s 2008 taxation year.

Accordingly, Ms. Colitto was not liable pursuant to s. 160.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 227.1 - Subsection 227.1(2) - Paragraph 227.1(2)(a) liability under s. 227.1 does not arise until s. 227.1(2) preconditions have been satisfied 251

Subsection 160(2) - Assessment

See Also

Davis v. The Queen, 94 D.T.C 1934, [1994] 2 CTC 2033 (TCC)

After comparing the wording of ss.160(2) and 152(1), McArthur TCJ. stated (p. 1935):

"... I am satisfied that the words 'at any time' provide a freedom to assess without the restrictions of '... with all due dispatch' regardless of the lapse of time since the assessment at issue is an original assessment."

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 160 - Subsection 160(1) 95

Administrative Policy

5 October 2012 APFF Roundtable, 2012-0454241C6 F - Double imposition

ETA s. 325 assessment in same audit is issued after ITA s. 160 to avoid double tax/no priority accorded to ARQ

A, who is indebted to each of CRA and Revenue Quebec (ARQ) for $50,000, transfers $10,000 of property to A's spouse (B) for no consideration. In response to a question as to whether CRA would reduce its assessment of B under s. 160 by the amount of the assessment made by ARQ under the equivalent Quebec provision, CRA stated that it did not have a policy to make such reduction, stating (TaxInterpretations translation):

In making an assessment by virtue of section 160, the Minister cannot make the assessment otherwise than in conformity with the authority conferred under the ITA.

An assessment under ETA s. 325 generally is to be reduced by the amount of the corresponding assessment under ITA s. 160, whereas there is no comparable reduction provision in s. 160 - so that double taxation can be avoided if the ETA assessment is issued second. CRA stated (TaxInterpretations translation):

In the situation where the two assessments are being dealt with at the same time, the administrative policy of the CRA is to issue the assessment under ETA section 325 last.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 325 double taxation from contemporaneous ITA/ETA assessments avoided by ITA assessment being 1st 107


Where the time limit provided for in s. 219(2) of the Business Corporations Act (Alberta) has expired, it will be necessary first to revive the dissolved corporation before a shareholder to whom property of the corporation was distributed can be assessed under s. 160(2).

Locations of other summaries Wordcount
Tax Topics - Other Legislation/Constitution - Ontario - Business Corporations Act - Section 242 revival first if assessment after 2-year limitation 117

88 C.R. - Q.80

A s. 160 assessment is not a reassessment; therefore, the taxpayer is garrotted without due process of law.

Subsection 160(3.1) - Fair market value of undivided interest or right

See Also

Gagnon v. The Queen, 2011 DTC 1030 [at 128], 2010 TCC 482

The taxpayer's common-law partner, who owed tax, transferred to the taxpayer his 50% interest in the house they shared, but reserved a right to use the house. Archambault J. found (at para. 31) that the reservation meant that taxpayer had not received an undivided interest in a property. Therefore, s. 160(3.1) was not applicable for calculating the fair market value of the transferred interest.

Subsection 160(4) - Special rules re transfer of property to spouse or common-law partner


Fluxgold v. The Queen, 90 DTC 6187, [1990] 1 CTC 176 (FCTD)

The exemption in s. 160(4) was available with respect to the transfer of funds by the taxpayer's husband to the taxpayer pursuant to a court order made under the Family Law Reform Act (Ontario), even if the allegation of the Crown, that the taxpayer's husband had obtained the funds in question as a result of a previous misappropriation of property of a corporation controlled by him and the taxpayer, were accepted.

See Also

Drolet v. Agence du revenu du Québec, 2020 QCCA 636

a written conveyance by a tax debtor to his spouse was not fleshed out as a written separation agreement by virtue of a subsequent retroactive divorce judgement

In the face of his substance abuse and gambling problems, the taxpayer demanded in May 2010 that her husband quit the family home (which he owned). When he thereupon put the home up for sale, she got him to agree to take it back off the market, and to convey (in December 2010) a ½ co-ownership interest in it to her (with it being understood that as a quid pro quo she would not seek support from him), before the home was put back on the market and sold (in June 2011), resulting in the receipt by her of $144,000. The ARQ subsequently assessed her under s. 14.4 and 14.5 of the Tax Administration Act (the equivalent of ITA s. 160). At issue was the exclusion, under the equivalent of s. 160(4), which provided:

14.7. For the purposes of section 14.4, where the property is transferred to a spouse pursuant to a decree, order or judgment of a competent tribunal or pursuant to a written separation agreement, the fair market value of the property at the time of the transfer is deemed to be equal to zero if, at that time, the transferor and his spouse are living separate and apart because of the breakdown of their marriage.

The Court of Quebec had concluded that the mere mention in the divorce judgment that was issued in November 20, 2015 that the effects of the partition of the family patrimony dated back to December 17, 2010 was not sufficient to meet the criteria of TAA s. 14.7.

After noting (at para. 35, TaxInterpretations translation) “Where it has been argued that the deed of transfer or assignment in itself constitutes the separation agreement, the case law has been unanimous that it must contain a reference to the separation pursuant to which the transfer was made”, Schrager JCA noted that, here, the December 2010 deed of assignment made no reference to an agreement for the taxpayer to renounce support in consideration for the transfer, and instead stated the consideration for the transfer to be nil – nor did the deed of transfer state that the parties at that time were separated (and instead stated that their marital status was unchanged).

Schrager JCA noted (at para. 38) that a “Consent on Ancillary Measures” signed by the parties in 2014 (i) confirmed that they ceased to have a married life together in the fall of 2010 (prior to the deed of assignment) and (ii) further stated:

In consideration of the division of movable and immovable property which the parties made in December 2010 and early 2011, the plaintiff waives maintenance for her and all remedies which she could assert against the defendant's estate … .

However, he found (a para. 39) that the Consent did not “confirm a written separation agreement previously entered into by the parties … [or] that the deed of assignment constituted such an agreement.”

He then stated (at paras. 44, 46), before dismissing the taxpayer’s appeal:

The interpretation suggested by the appellant amounts to emptying TAA section 14.7 of meaning or, at least, to defeating the purpose of the measure provided for in TAA sections 14.4 and 14.5 by opening up the potential for a taxpayer with huge tax debts to benefit from the transfer of the family home through the division of the family patrimony a number of years later. Moreover, as the respondent points out, the potential provided for in C.C.Q. article 417 to have the effects of the dissolution of the marriage made retroactive to the date of cessation of cohabitation through the effect of the divorce judgment is a measure of equity related to the assessment of the net value of the family patrimony that can be applied at the request of either party. The fact remains that the right to partition the family patrimony arises at the time one of the events provided for in C.C.Q. article 416 occurs, namely separation from bed and board, divorce or nullity of marriage. ...

…[E]xceptions cannot be created by interpretation. The exception in section 14.7 is clear; the property in question must be disposed of after the intervention of a written separation agreement, judgment or order.

J.B. v. Agence du revenu du Québec, 2018 QCCQ 4200

unsigned layperson agreement qualified as a “written separation agreement”/husband in basement was separate and apart

The taxpayer`s relationship with her husband broke down in 2007, and in August 2007, her husband took the initiative to prepare in mangled English a written separation agreement that provided that he would transfer his 1/2 co-ownership interest in various of their co-owned properties in satisfaction of his support obligations. For more than a year thereafter he spent much of his time in the basement of their house, in order to ease the transition for their two children (one of them, autistic), in addition to staying with friends and his own family. In May 2008, the taxpayer arranged for the ½ co-ownership interests to be transferred to her. In March 2011, she obtained a divorce decree that confirmed the previous transfer of such properties to her in settlement of her support claims.

In finding that the equivalent of ITA s. 160(4) deemed the properties to have been transferred to the taxpayer for nil consideration, Dortélus J first found that the agreement drafted by the taxpayer’s husband qualified as a “written separation agreement,” even though it was not signed by the taxpayer, given that she had accepted it and they had acted upon it, with its essential terms being confirmed by the divorce judgment. He also found that from August on they had lived “separate and apart” notwithstanding the maintaining by him of a “pied à terre” in the basement for some time.

Subsection 160(5)

Paragraph 160(5)(a)

Subparagraph 160(5)(a)(ii)


Joint Committee, "Avoidance of Tax Debts", 5 April 2022 Joint Committee Submission

"One of the purposes” is too low a threshold (p. 3)

  • The use of the "one of the purposes” test in s. 160(5)(a)(ii) establishes too low a threshold, and should be re-framed as “one of the main purposes."

There should be a specific tax debt that is being avoided (pp. 4-6)

  • The reference in s. 160(5)(a)(ii) to a test of it being reasonable to consider that one of the purposes of the transaction or series was “to avoid … liability … for an amount payable under this Act” also sets too low a threshold and should be re-framed to refer to a demonstrable current or future anticipated tax debt of the transferor that would otherwise be avoided, determined at the beginning of the applicable series of transactions. Otherwise, the rule could apply, for example, to:
    • An individual who makes a contribution to her spouse’s RRSP to protect against future liabilities of that contributor and to reduce (i.e., “avoid”) the transferor’s tax liability for that year and two years later, that individual becomes liable for a tax debt under s. 160 as a result of a dividend from a controlled corporation.
    • A Holdco, which was set up to hold Opco for general creditor-proofing reasons, receives a dividend out of Opco’s safe income in 2022 and then, unexpectedly, Opco is unable to pay its 2023 tax liability in 2024.

Paragraph 160(5)(c)


Joint Committee, "Avoidance of Tax Debts", 5 April 2022 Joint Committee Submission

S. 160(5)(c) rule should reflect all value-for value exchanges (pp. 6-9)

  • The rule under s. 160(5)(c) (deeming there to be a net property transfer to the current or future tax debtor under s. 160(1)(e)(i)) is deficient in that it should:
    • include the benefit of substituted property for the consideration received, and any property received by the transferor by virtue of the ownership of such property (otherwise than as proceeds of disposition),
    • refer to valuation at end of the series rather than throughout the series,
    • not be adversely engaged due to FMV fluctuations from external factors such as stock market trading or FX fluctuations, and
    • not be engaged where there is a cancellation of the debt or other securities received that represents a payment for value.
  • For example, there should not be considered to be a deemed depletion of value if:
    • Shares of a corporation (Holdco) purchased for FMV consideration by the future tax debtor from the non-arm’s length (NAL) seller become worthless as part of the series due to a dividend-in-kind by Holdco to such future tax debtor of all its assets (i.e., shares of Opco); or
    • The tax debtor assigns a note, equaling the FMV of assets sold by it to the NAL purchaser, to that purchaser’s parent, for FMV consideration, followed by a cancellation of that debt on a s. 88(1) wind-up.