Transferring assets to family members may seem routine. However, under Canadian tax law, these transactions can create significant and unexpected liability.
Under Section 160 of the Income Tax Act, the Canada Revenue Agency (CRA) has the power to pursue the recipient of property for the transferor’s unpaid tax debts.
This rule is strict, widely applied, and often catches taxpayers off guard.
How Section 160 Works
Section 160 applies when all three conditions are met:
- Property is transferred to a non-arm’s length person (e.g., spouse, child, or related party)
- The transfer is made for less than fair market value (FMV)
- The transferor has an existing tax liability at the time of transfer
If these conditions are satisfied, the recipient may become liable for the difference between the asset’s fair market value and the amount paid, up to the transferor’s outstanding tax debt.
Example
If a parent transfers an asset worth $100,000 to a child for $0, and the parent owes $60,000 in taxes:
- The CRA can pursue the child for up to $60,000
- The child does not need to have known about the tax debt
Why This Rule Is Serious
Section 160 is particularly strict because:
- No intent is required — even innocent transfers are captured
- No knowledge is required — the recipient’s awareness is irrelevant
- Broad application — applies to cash, real estate, shares, and other property
What may appear to be a simple family transaction can result in substantial financial exposure.
Common Situations
Section 160 issues frequently arise in situations such as:
- Gifting assets to children
- Transferring property between spouses
- Moving funds between related corporations or entities
- Informal family arrangements without proper valuation
Key Takeaway
Section 160 allows tax liability to follow assets into the hands of related parties. Once applied, it can be difficult, time-consuming, and costly to resolve.
Before transferring assets to family members, it is critical to understand the risks and ensure proper structuring.
Protect Yourself Before You Transfer Assets
If you are considering transferring assets to family members — or if you have already done so and are facing potential exposure — it is essential to seek professional advice early.
HLG Tax Law assists clients with:
- Section 160 risk assessment
- CRA disputes and collections defence
- Structuring asset transfers to minimize liability
Don’t wait until the CRA takes action.