Jan 19, 2022
As we advised in Tax Tip 20-04 , significant additional disclosure and filing requirements for trusts were announced in the 2018 Federal Budget and are scheduled to apply for trust’s 2021 and subsequent tax years.
“In determining tax liability under s. 160, non-monetary transfers must be considered.”
Section 160 of the Income Tax Act states that when an individual owes tax to the CRA and transfers property for less than its fair market value, the difference between the fair market value and the amount paid for the property becomes the liability of the transferee (the person who purchased the property). This law ensures that persons owing tax debts to the CRA do not transfer assets to a related person, so as to avoid paying their tax liability.
The amount paid for the property is not always clear. The CRA generally takes the position that the amount paid is the cash payment. In the case of Beaudin (2004 TCC 469), the Tax Court had to determine if non-monetary items had some value.
The taxpayer’s parents owned a cottage that had an undisputed fair market value ofapproximately $60,000. His parents owed the CRA more than this amount. At the time of the transfer of the property to their son, the parents were in very poor health and had difficulty making payments on their property and maintaining it. The parents and thetaxpayer agreed that their son (Richard Beaudin) would pay $30,000 to obtain title to the property. At the same time, his parents would reside in the property for as long as they live. The parents would be responsible for heating the premises and for minor maintenance costs. All other expenses, such as taxes and major repairs, were the responsibility of their son.
The CRA determined, pursuant to subsection 160(1), that the son was liable for $30,000 of his parents’ taxes, based on the difference between the fair market value of the cottage ($60,000) and the cash paid ($30,000).
The Court took an interesting approach, noting that there were non-monetary benefits, such as allowing his parents to stay in the house, and taking responsibility for manyof the expenses. The Court decided (without explanation) that the value of the non-monetary benefits was $15,000. Consequently, the Court decided that the taxpayer was liable for $15,000 of his parents’ tax, not $30,000.
The Court noted the difficulty in valuing non-monetary benefits, but nevertheless they must be taken into account.
TAX TIP OF THE WEEK is provided as a free service to clients and friends of the Tax Specialist Group member firms. The Tax Specialist Group is a national affiliation of firms who specialize in providing tax consulting services to other professionals, businesses and high net worth individuals on Canadian and international tax matters and tax disputes.
The material provided in Tax Tip of the Week is believed to be accurate and reliable as of the date it is written. Tax laws are complex and are subject to frequent change. Professional advice should always be sought before implementing any tax planning arrangements. Neither the Tax Specialist Group nor any member firm can accept any liability for the tax consequences that may result from acting based on the contents hereof.
TAX TIP is provided as a free service to clients and friends of Cadesky Tax.
The material provided in Tax Tip is believed to be accurate and reliable as of the date of posting. Tax laws are complex and are subject to frequent change. Professional advice should always be sought before implementing any tax planning arrangements. Cadesky Tax cannot accept any liability for the tax consequences that may result from acting based on the contents hereof.