Joint liability on transfers to avoid CRA collections
Tax consequences of property transfers
Section 160 makes the recipient of a non-arm's-length transfer jointly liable for the transferor's tax debt — up to the excess of the property's FMV over the consideration paid.
Plain-language explanation
Section 160 is CRA's primary tool to prevent tax-motivated transfers of property to non-arm's-length parties. If you transfer property to a spouse, child, or other non-arm's-length person and receive less than fair market value, the transferee becomes jointly liable for the transferor's existing tax debt.
The conditions that trigger s.160: 1. A transfer of property occurred 2. The transferor was not dealing at arm's length with the transferee (or the transferee is a trust and the transferor is a beneficiary) 3. The transferee gave inadequate or no consideration (paid less than FMV) 4. The transferor had a tax debt at the time of the transfer
The amount of liability: The transferee's liability is the *lesser of*: - The excess of FMV of transferred property over consideration paid, and - The transferor's tax debt at the time of transfer
Common scenarios: - Transferring the family home to your spouse while CRA is pursuing you - Gifting cash to a family member before a CRA audit - Paying a dividend to a shareholder who is behind on personal taxes
s.160 does NOT require fraud or intent — it applies automatically to transactions below FMV, even innocent ones. Transfers for legitimate estate planning purposes (using s.73 spousal rollovers) do not attract s.160 as long as the transfer is done correctly.
Example
Mark owes $200,000 in income taxes. He transfers his rental property (FMV $500,000) to his adult son for $1. CRA can assess the son for Mark's tax debt up to $499,999 (the FMV minus consideration paid). The son is jointly liable.
Amendment history
Significant changes to this provision. Older versions help you understand rules that applied in prior tax years.
S.160 extended to apply to dividends paid to related shareholders when the corporation has a tax liability. Previously unclear whether corporate dividends triggered s.160; courts confirmed they do — a corporation's dividend to a non-arm's-length shareholder while owing tax triggers joint liability.
Before
Application to corporate dividends was unclear
After
Confirmed: corporate dividends to shareholders attract s.160 if the corporation has a tax debt and consideration is below FMV
Common questions
Can CRA come after my spouse for my tax debts? +
If you transferred property to your spouse without receiving fair market value while you had a tax debt, yes — s.160 makes your spouse jointly liable for your tax debt up to the value of the property transferred minus what they paid.
Does s.160 apply to gifts to children? +
Yes. Gifts to children (or any non-arm's-length person) can trigger s.160 if the donor had a tax debt at the time. "Tax debt" includes assessed amounts and amounts that were accruing — not just formally assessed obligations.
How do I protect myself from a s.160 assessment? +
Pay FMV for any property you receive from a non-arm's-length person who may have a tax debt. Document the transaction properly. If you inherited property from an estate with tax debts, consult a tax lawyer about your exposure.
Key terms
Related sections
CPA recommendation
S.160 assessments are common and serious. If you received property from a spouse or family member who had CRA debts, or if you are estate planning and want to transfer property to family, speak with a tax professional first.
Source: Income Tax Act, RSC 1985, c. 1 (5th Supp.), section 160. — Read the official text on Justice Canada
These summaries are for educational purposes only and do not constitute legal or tax advice. Speak with a CPA for advice on your specific situation.