In Brown v R, 2020 TCC 45, the Court considered whether section 160 of the Income Tax Act (Canada) applied where a tax-debtor husband transferred funds to his wife who had agreed to use the funds to pay his credit card bills. The husband and wife kept records of the transfers and the credit card payments. The wife used the funds transferred to her to pay the husband’s debts.
The Crown argued that section 160 should apply to the wife because her obligation to pay her husband’s debts was only a moral obligation that did not constitute consideration for the purposes of the section. The Court found that in fact the husband could have sued his wife if she had taken his money and then refused to pay his bills. The wife, then, had given consideration for the funds transferred to her.
The authors of the summary suggest that anyone contemplating a similar arrangement should reduce it to writing.
Philip Friedland and Adam Friedlin “Section 160 and Transfers Between Spouses: Distinguishing Moral from Legal Obligations” 20:4 Tax for the Owner-Manager (October 2020)
