In most circumstances, when someone gives you a gift (unless of course it is yet another subscription to the ‘Jelly of the Month Club’), the term ‘don’t look a gift horse in the mouth’ is appropriate. This is especially true when that gift is monetary or real estate in nature – after all, who could complain about that? However, if the individual giving the gift is sitting with a tax debt, that gift horse may just be more trouble than it is worth. Today we’re talking about Section 160 Assessments.
According to Section 160 of the Income Tax Act, someone who receives a gift can then become liable for the tax debts of the related gift giver to the lesser of the amount of the gift giver’s tax debt and the amount of the gift. These are related to non-arm’s length transfers (most often applies to family members/relatives).
There are many activities that may trigger potential Section 160 exposure. For example, if a husband transfers the title of the family home into his wife’s name, the wife can then become liable for the husband’s tax debt. If a son signs over his paycheques to his mother to cash, the mother can then become liable for the tax debt. If a father gifts a large sum of money to a daughter to help pay for her wedding, the daughter then becomes liable for the tax debt.
Wait – what if you didn’t know anything about the tax debt? Sorry, that won’t fly – the Canada Revenue Agency doesn’t want to hear it. The only real defences are:
- the gift giver didn’t actually owe the taxes;
- the gift was actually a repayment of money already owed to the receiver; or
- the gift was not worth as much as the CRA assumed.
In most scenarios, these are the only ways to get out of a Section 160 assessment.
There is no time limit either – the Canada Revenue Agency has the ability to initiate these assessments no matter how much time has passed.
If you are considering transferring property or funds to help get out of paying a tax debt, consider the impacts to those on the receiving end of your ‘gift’ – do you really want to saddle them with a tax debt not of their own making? Probably not.
If you’re currently sitting with a tax debt thanks to a Section 160 assessment, don’t ignore those notices. The CRA’s next step will be enforcement action, which could include a frozen bank account, property lien or wage garnishment.
If either one of these scenarios applies to you, call Tax Solutions Canada today. We have the tools and expertise to help you get rid of the tax debt: 1-888-868-1400.