Section 160: Paying Other People’s Taxes
As explained previously (here), section 160 of the Income Tax Act, and its counterpart, section 325 of the Excise Tax Act, can be used by the Canada Revenue Agency to attach tax liability to recipients of transfers from persons with tax debts. This means if someone gives you something of value (pretty much anything), while they have a tax debt, the CRA can and will go after you. Their justification is that the original tax debtor should have sold whatever was given away, and the funds should have been used to pay down the tax debt.
Section 160 may be triggered when a person who owes taxes makes a transfer of anything of value, at less than fair-market value. The transfer occurs directly or indirectly, to
- A spouse or common-law partner;
- An individual under 18 years of age; or
- A person with whom they are not dealing at arm’s length.
Section 160 assessments are not subject to a time limit, and bankruptcy of the original taxpayer will not cancel your section 160 assessment.
What should I do if I receive a letter threatening a Section 160 Assessment?
First and foremost, you need to know your rights. Right #15 of the CRA’s Taxpayers’ Bill of Rights states, “you have the right to be represented by a person of your choice.” This Right means that you are not required to speak directly with the CRA. Rather, you may seek professional advice from tax lawyers or consultants to help you navigate this possible assessment. Section 160 assessments are very technical, and normally require some professional assistance.
Secondly, you must understand that the CRA does not care if you knew that the person giving you something had a tax debt. Section 160 applies regardless of the recipient’s knowledge of the original taxpayer’s tax debts. This means that even when a recipient is unaware that the original taxpayer owed taxes to the CRA, the recipient may likely still be liable to pay tax based on section 160.
Notably, if the original taxpayer did not owe taxes, then section 160 does not apply. When section 160 does apply, there are some viable defences to its imposition. For example, if the original taxpayer owed the recipient money at the time at which the transfer for the property in question was made, then section 160 may not be applicable, either in whole or in part. Moreover, if the property in question is not worth as much as the CRA’s valuation of it, a defence could also be established on this basis.
Each section 160 assessment is unique to its specific set of facts. As a result, it is best to consult a tax professional in considering how to respond to section 160 assessments.
Can I fight a Section 160 Assessment?
You are then able to attempt to persuade a CRA appeals officer that the assessment is incorrect either wholly, or in part. You may even argue that the original assessment issued to the original tax debtor is wrong. This is a valuable tool if the original debt is outside the time limits to be fought. This can create a back door and allow those who missed their first chance a second to fight an assessment.
If appeals rules that the assessment is valid, you may appeal their decision directly to the Tax Court of Canada.
Could I Really be Forced to Pay Someone Else’s Taxes
The short answer is absolutely. Where CRA has no options available to collect money from the original tax debtor, for example after they have gone bankrupt, the CRA will explore other avenues of collection. The CRA will never stop trying to collect funds owed to them. They will transfer debts whenever possible, and sometimes, even when impossible. That is why it is so important to seek professional representation if you receive a letter threatening one of these assessments.
Be Sure to Act Fast!
The earlier that you deal with this issue, the easier it will be to navigate. By approaching the assessment in a timely manner, you can minimize interest and penalties accrued. Furthermore, by getting started prior to the CRA taking enforcement action, you are able to put collections on hold while arguing the assessment.
If you are being threatened with a section 160 or section 325 assessment, you need to act quickly. Contact Rosen Kirshen Tax Law for an honest assessment of your options, and see what we can do to help you!
This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in the articles. If you have specific legal questions you should consult a lawyer.