160 Assessments – Can CRA Take Back My Gift?

Subsection 160(1) of the Income Tax Act (the “Act”) is a powerful tool that allows the CRA to go after family members and other non-arm’s length persons who have received gifts (and other transfers where fair market value consideration is not paid) from a non-arm’s length person who has an outstanding tax debt.

Subsection 160(1) of the Act applies to transfers made by someone (i.e., the transferor) who has an outstanding tax debt to  a spouse/common-law partner, individuals under 18 years of age and other persons (i.e., the transferee) with whom the transferor was not “dealing at arm’s length.” Whether any two persons can be considered not to be dealing with each other at arm’s length is a question of fact, and the Act deems certain relationships not to be at arm’s length. For example, spouses and parents and  children (minor or adult) are deemed by the Act to never deal with each other at arm’s length.


Where a non-arm’s length transfer has occurred, subsection 160(1) imposes joint liability for the transferor’s tax liability on the transferor and the transferee. Specifically, the transferor and the transferee become jointly liable for the lesser of the transferor’s income tax liability and the value of the gift less any amount paid by the transferor to the transferee in respect thereof. For example, where a father who has an outstanding tax liability of $50,000 gifts his 18-year old son his car worth $30,000, the son can be held liable by the CRA for $30,000 under subsection 160(1). Where the son pays his father$3,000 for the $30,000 car, the son can be held liable for $27,000 of his father’s tax bill. The fact that the son may not have been aware that his father owed money to the CRA does not matter.  The CRA has extensive audit powers and ability to compel information from taxpayers. 


The purpose of this joint liability provision is fairly clear; the CRA wants to ensure that tax debtors cannot avoid the collections department by  transferring title of their assets in the name of friends and family. The practical application of this provision, however, can be quite severe. Since there is no requirement that the recipient of the gift know at the time the gift is received that the donor had a tax liability, individuals can unexpectedly find themselves responsible for the tax debts of an ex-spouse or parent.   Furthermore, challenging the tax liability of an ex-spouse or parent can be particularly difficult where their financial information is not readily available.