{"id":1978,"date":"2020-02-03T21:50:21","date_gmt":"2020-02-03T21:50:21","guid":{"rendered":"https:\/\/www.thor.ca\/blog\/?p=1978"},"modified":"2020-02-03T21:50:21","modified_gmt":"2020-02-03T21:50:21","slug":"tax-court-finds-that-cancellation-of-arrears-interest-owed-by-transferor-reduces-transferees-liability-under-section-160","status":"publish","type":"post","link":"https:\/\/www.thor.ca\/blog\/2020\/02\/tax-court-finds-that-cancellation-of-arrears-interest-owed-by-transferor-reduces-transferees-liability-under-section-160\/","title":{"rendered":"Tax Court finds that cancellation of arrears interest owed by transferor reduces transferee\u2019s liability under section 160"},"content":{"rendered":"

In Scott v The Queen<\/em>, 2020 TCC 4<\/a>, the Tax Court of Canada held that a transferee\u2019s liability in a section 160 assessment was reduced where, after the assessment, the Minister of National Revenue (the \u201cMinister<\/strong>\u201d) cancelled a portion of the transferor\u2019s liability for arrears interest.<\/p>\n

Generally, section 160 of the Act prevents a taxpayer from avoiding collection by transferring property to certain parties.\u00a0 Section 160 applies where four conditions are met:<\/p>\n

    \n
  1. the transferor is liable to pay an amount under the Act;<\/li>\n
  2. the transferor transfers property to a transferee;<\/li>\n
  3. the transferee is the transferor\u2019s spouse or common-law partner, under 18 years of age or does not deal at arm\u2019s length with the transferor; and<\/li>\n
  4. the fair market value of the transferred property exceeds the fair market value of the consideration given by the transferee (the author will refer to the difference between the two amounts as the \u201cExcess<\/strong>\u201d).<\/li>\n<\/ol>\n

    If these conditions are met, paragraph 160(1)(e) provides that the transferee is jointly and severally liable with the transferor for the amounts owing by the transferor under the Act in or in respect of the taxation year in which the property was transferred or any preceding taxation year, up to the Excess.<\/p>\n

    In Scott<\/em>, the taxpayer\u2019s brother transferred $224,500 of funds to the taxpayer in 2005 and 2006.\u00a0 The taxpayer and the Minister agreed that, on May 22, 2015, the taxpayer\u2019s brother owed $233,835 under the Act in respect of the relevant years preceding the transfers (including arrears interest accrued after the transfers).\u00a0 Accordingly, on May 22, 2015, the Minister issued a section 160 assessment to the taxpayer for $224,500 in respect of his brother\u2019s debts.<\/p>\n

    In February 2016, pursuant to the taxpayer relief provisions of the Act, the Minister cancelled the arrears interest owing by the taxpayer\u2019s brother that had accrued between March 2009 to July 2013.\u00a0 The parties agreed that, of the $233,835 owing by the taxpayer\u2019s brother on May 22, 2015, $149,350 pertained to arrears interest and that $50,303 of that interest had now been cancelled.<\/p>\n

    Among other things, Justice Hogan of the Tax Court had to determine whether the cancellation of interest reduced the brother\u2019s debt for the purposes of the section 160 assessment to $183,532 (i.e. $233,835 less $50,303), thereby also reducing the taxpayer\u2019s liability to $183,532.<\/p>\n

    The Minister argued that the cancellation of interest did not apply retroactively, so the brother\u2019s liability for the purposes of the section 160 assessment against the taxpayer was still $233,835.\u00a0 The Minister granted the cancellation of interest after issuing the section 160 assessment.<\/p>\n

    Justice Hogan rejected the Minister\u2019s position, noting that it could result in the taxpayer owing a greater amount than his brother.\u00a0 Justice Hogan reasoned that, since the liability under section 160 is joint and several, the transferee\u2019s tax liability could not exceed the transferor\u2019s tax liability. The provision makes the transferee jointly and severally liable with the transferor for all or a lesser part of the transferor\u2019s liability.\u00a0 Accordingly, Justice Hogan held that the taxpayer\u2019s liability under section 160 was reduced to $183,532.<\/p>\n

    This result is consistent with a purposive interpretation of section 160 and is certainly fair in the circumstances.<\/p>\n","protected":false},"excerpt":{"rendered":"

    In Scott v The Queen<\/em>, 2020 TCC 4<\/a>, the Tax Court of Canada held that a transferee\u2019s liability in a section 160 assessment was reduced where, after the assessment, the Minister of National Revenue (the \u201cMinister<\/strong>\u201d) cancelled a portion…<\/p>\n","protected":false},"author":51,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[29,30],"tags":[],"class_list":["post-1978","post","type-post","status-publish","format-standard","hentry","category-collections","category-current-tax-cases"],"_links":{"self":[{"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/posts\/1978","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/users\/51"}],"replies":[{"embeddable":true,"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/comments?post=1978"}],"version-history":[{"count":2,"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/posts\/1978\/revisions"}],"predecessor-version":[{"id":1980,"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/posts\/1978\/revisions\/1980"}],"wp:attachment":[{"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/media?parent=1978"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/categories?post=1978"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/tags?post=1978"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}