section 160 Assessments: How CRA Can Make You Pay Someone Else’s Tax Debt – A Complete Guide by a Montreal CPA Firm Near You

Introduction

One of the most surprising—and devastating—powers the Canada Revenue Agency (CRA) has is the ability to assess someone else for a taxpayer’s debt under Section 160 of the Income Tax Act. This means CRA can legally force you to pay the tax debt of a spouse, child, parent, business partner, or anyone you received property or money from—even if you had no idea they owed taxes. Section 160 assessments are harsh, difficult to reverse, and financially dangerous if not handled correctly. This guide explains how Section 160 works, who is at risk, and how to defend yourself when CRA claims you owe tax for someone else’s actions.

Legal and Regulatory Framework

Section 160 of the Income Tax Act allows CRA to assess a transferee (the person receiving property) for the tax debts of a transferor (the person transferring property). The rule applies when:

1. The transferor owed tax at the time of transfer

2. The transferor and transferee were non-arm’s-length (family, related individuals, spouses, corporation-shareholder, etc.)

3. Property was transferred for less than fair market value

4. CRA issues a formal Section 160 assessment
   There is no time limit for CRA to issue a Section 160 assessment. CRA often uses this tool when it cannot collect from the original taxpayer.

Key Court Decisions

In Canada v. Heavyside, the Federal Court of Appeal confirmed that Section 160 applies even when the transferee was unaware of the tax debt. In R. v. Livingston, CRA successfully enforced Section 160 against a spouse who received property below fair market value. In Kapoor v. Canada, the taxpayer’s Section 160 liability was reduced after proving fair market value had been paid. These cases show that intent does not matter—if the conditions are met, CRA may assess the transferee.

How Section 160 Works

Section 160 targets asset transfers below fair market value such as:

• Spouses adding each other to a house title

• Parents gifting property or cash to children

• Shareholders taking dividends or assets while the corporation owes taxes

• Family members transferring vehicles, real estate, or investments

• Businesses shifting assets between related parties
  If CRA proves the transferor owed taxes and the transfer was below FMV, the transferee becomes jointly liable for the value of the transfer, plus penalties and interest.

Examples of Section 160 in Real Life

Example 1: Spouse Transfer

A husband owes CRA $85,000. He transfers his half of the home to his wife for $1. CRA can assess the wife under Section 160 for up to the value of the transfer.

Example 2: Gifting Money to Children

A parent owing taxes gifts $40,000 to their child to help buy a car. CRA assesses the child for $40,000.

Example 3: Directors Taking Dividends

A shareholder withdraws $100,000 from the corporation while the corporation owes GST/HST. CRA can assess the shareholder personally.

Example 4: Corporate Asset Transfers

A business moves equipment to a related corporation below FMV. CRA assesses the receiving corporation.
Intent does not matter. Even innocent recipients are liable.

What CRA Looks For

CRA reviews:

• Bank transfers between family members

• Home title transfers

• Corporate dividends or shareholder loans

• Gifts or loans between related companies

• Transfers of vehicles, crypto, or investments

• Marriage breakdown settlements
  If CRA finds a below-FMV transfer, Section 160 is applied aggressively.

Defences Against Section 160 Assessments

1. Fair Market Value Defence

If you paid full fair market value, Section 160 does not apply. Appraisals and bank records are critical.

2. No Tax Debt at Time of Transfer

If the transferor did not owe tax at the time, Section 160 cannot be used.

3. Arm’s-Length Transaction

If the parties were not related or did not have a non-arm’s-length relationship, Section 160 may not apply.

4. Procedural Errors by CRA

CRA must calculate FMV accurately. If they misvalued the property, you can dispute the assessment.

5. Partial FMV Payments

If you paid some value, the Section 160 liability must be reduced accordingly.

6. Divorce Settlements

Court-ordered matrimonial settlements may provide exceptions but require strong legal arguments.

How to Fight a Section 160 Assessment

1. File a Notice of Objection (90-day deadline)

This pauses income tax collections.

2. Provide Appraisals and Valuations

Show FMV at the time of transfer.

3. Prove Payment

Bank statements, receipts, or loan agreements.

4. Provide Legal Documents

Marriage contracts, separation agreements, corporate resolutions.

5. Challenge CRA’s FMV Calculations

CRA often overestimates FMV to inflate Section 160 liability.

6. Appeal to the Tax Court if Necessary

Tax Court frequently overturns or reduces Section 160 assessments.

Consequences of Ignoring a Section 160 Assessment

CRA can:

• Garnish wages

• Freeze bank accounts

• Seize future refunds

• Place liens on homes

• Pursue joint property
  Ignoring it makes the situation far worse.

How to Prevent Section 160 Problems

Avoid transferring property while owing taxes.
Do not gift money to family without confirming tax balances.
Use legal agreements for property transfers.
Document all payments and valuations.
Consult a CPA before moving assets between corporations.

Mackisen Strategy

At Mackisen CPA Montreal, we defend clients against Section 160 assessments by gathering valuation evidence, reconstructing payment records, challenging CRA assumptions, filing Notices of Objection, negotiating relief, and appealing to Tax Court when needed. We protect spouses, children, and business owners from unfair liability.

Real Client Experience

A Montreal woman avoided a $92,000 Section 160 assessment after proving her home purchase was at FMV. A business owner reduced a six-figure assessment by documenting corporate repayments. A son avoided liability after we showed his “gift” was actually a repayable loan. A divorced spouse overturned CRA’s assessment using court-ordered settlement evidence.

Common Questions

Can CRA make me pay my spouse’s taxes? Yes—if Section 160 applies. Is intent relevant? No. Does CRA need a court order? No. Can children be assessed? Yes. Can Section 160 be fought? Yes—with strong evidence.

Why Mackisen

With more than 35 years of combined CPA experience, Mackisen CPA Montreal aggressively defends taxpayers against Section 160 assessments through documentation, valuation, legal arguments, and strategic objections. We protect your assets and ensure CRA applies the law correctly.