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

Two months after their marriage, the taxpayer received (on January 8, 1993) from her 80-year old ailing husband (“CC”) the transfer of a property valued in excess of his subsequently assessed tax liabilities for various taxation years including his 1988 and 1989 years (as a result of losses from a partnership investment being denied). CC died in 2002.

In rejecting the taxpayer’s submission that she had provided full consideration for the transfer through her agreement to marry CC and care for him, Owen J stated (at paras. 82, 83):

There is no evidence of a legally binding agreement between CC and the Appellant identifying marriage as consideration given by the Appellant for the Property, and there is no evidence of the fair market value of such a promise. A promise to marry that had already been fulfilled by the Appellant at the time of the Transfer cannot be consideration given by the Appellant for the Property at the time of the Transfer.

… The Appellant continued to work outside the home after marrying CC and had no special training qualifying her to care for CC in a manner beyond the level of care that might be expected of any spouse. Further, there is no evidence of a legally binding agreement identifying future care of CC as consideration for the Property, and there is no evidence regarding the value of such future care.

An Alberta corporation (Whitecap ) had been wound up into its sole shareholder. The Attorney General sought to revive Whitecap pursuant to s. 208 of the Business Corporations Act (Alberta) in order that it could be assessed by CRA. That, in turn, would permit an assessment of the shareholder under ITA s. 160.

After finding that the Attorney General had standing as an “interested party” to bring this application, Schlosser J also noted that although the time limitation of two years from the time of dissolution had passed for a person with a claim against the dissolved corporation to sue a shareholder who has received corporate property pursuant to ABCA s. 227, this limitation had been “held not to be an absolute limitation” (para. 26). Accordingly, the revival application of the Attorney General was “not without purpose” (para. 28).

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. …

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.

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].

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.

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.

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.

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.

“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.

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.

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.

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?

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.

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.

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.

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.

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.

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.

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…

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).

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).

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.

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.

The proceeds of a non-registered segregated fund were paid as a death benefit to the two daughters of the deceased holder of the segregated fund, who had been designated under the fund to received the death benefits. In finding that the payment of the death benefits did not constitute a transfer to which s. 160 applied, Rowe DJ stated (at paras. 33, 34):

As a hybrid fund, although it was a contract with London Life for an investment plan designed to produce a return, it was also an insurance policy pursuant to which Arthur W. Higgins could designate beneficiaries of any balance upon his death. …

Regarding the nature of the segregated fund at issue, I conclude that the overarching feature was the life insurance component. The Estate of the late Arthur W. Higgins was not party to the contract with London Life. In paying each appellant the sum of $5,096.08 on February 21, 2002, London Life was fulfilling a legal obligation. The Minister assumed – incorrectly – that the segregated fund belonged in the same category as an RRSP or RRIF. That is not correct according to the evidence which permits me to accept the proposition that the right to confer a death benefit to named beneficiaries was an integral and indivisible component of the policy/plan in force. Arthur W. Higgins had the right to expect that London Life – upon his death - would abide by its contractual obligation to transfer the residue of said fund to his two daughters in equal shares.

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.

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.

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.

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).

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.

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.

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.

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.

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.

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).

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.

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.

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.

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.

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].

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.

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".

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.

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.

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".

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."

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.

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.

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".

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.

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.

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.

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.

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.

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."

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).