Hopefully as a
spouse, family, friend or business associate you never get a letter that goes
like this:
“Dear Mr./Ms.
“X”, you received an asset from a taxpayer who knew or ought to have known
he/she owed money at the time you paid less than full market value for the
asset. We, the CRA, deem you to now stand in shoes of that taxpayer and we
order you to pay the amount of the tax $BIG plus interest immediately”.
If you owe
money to the CRA and have transferred assets into the names of loved ones for
any reason (but often to protect them from creditors and on the advice of
uninformed lawyers and accountants) then this article may disappoint you, and
if you are the person who received the asset then this article may terrify you.
When you have
a tax debt and then transfer assets into the name of another, like transferring
your home into the name of your spouse for example, the CRA can use Section 160
of the Income Tax Act to transfer your tax debt to the name of your spouse and
still attack not only the asset but your spouse as well. The Canadian Income
Tax Act outlines all of the federal provisions and regulations regarding
personal and business taxes for the country. It outlines what is required by
all taxpayers in Canada.
What is
Section 160 of the Canadian Income Tax Act? Section 160 is a portion of the
Income Tax Act which relates specifically to the transfer of property from one
individual to another. It states that if a person with a tax debt owing to the
CRA transfers property to a spouse, common-law partner, someone under the age
of 18, or someone not dealing with the individual at arm’s length, both the
transferee and the transferor are responsible for a portion of the transferor’s
tax debt. This means that, if property is transferred to you, you may be liable
for their tax debt.
In this case,
the Canadian Income Tax Act says:
The recipient of the property can be assessed the
lesser of:
1. The tax debt owing by the transferor; and
2. The difference between the fair market value of
the transferred property and the consideration received by the transferor.
This means
that, if you have not given fair market value to the transferor, you are liable
for that amount and can be assessed based on that amount – ultimately you could
be on the hook for that portion of the transferor’s tax debt.
This transfer
of property seems to be a common go-to method for those attempting to deal with
their tax debt without having to pay. However, it is easy for the CRA to
investigate and assess the transferee for a tax debt under Section 160 of the
Canadian Income Tax Act.
The best thing
that you can do if you have a tax problem is deal with it - before the CRA
starts going after your property. The earlier you deal with your tax problem,
the less interest you end up paying and the better to avoid penalties, and if
you attack the problem before the CRA takes enforcement action, you will have
more leverage when negotiating with them.
The Excise Tax
Act has very similar provisions for HST/GST.
If you have
found yourself assessed for someone else’s tax debt under Section 160 of the
Canadian Income Tax Act and need a solution, please contact Tax Solutions
Canada by calling 1.888.868.1400 or visiting us online at www.taxsolutionscanada.com.
No comments:
Post a Comment