Recent developments in s 160 law

Yves St-Cyr and Jacob Yau “What’s New in Section 160” 2021 Ontario Tax Conference

1 Introduction

2 Overview of Section 160

2.1 Purpose

2.2 Requirements for Application


3 Underlying Tax Debt and Burden of Proof

3.1 Challening Underlying Assessment—Whose Burden?

Mignardi v R, 2013 TCC 67

Damis Properties, 2021 TCC 24 – may not be fair for Minister to be able to assume facts about the underlying tax liability

4 Transfer of Property

4.1 Meaning and Scope of “Transfer”

Transferor must divest itself of property.

But cf Eyeball Networks, 2021 FCA 17: ‘he words used in section 160 “capture all forms of transfers including those resulting from the combined effect of multiple transactions, whether preordained or not.”’

4.2 Recent Examples of “Transfers” for Section 160 Purposes

Some examples of “transfers”

  • taking name off title
  • causing corporation to issue shares for less than fair market value
  • designating family members as beneficiaries of life income fund
  • transferring legal but not beneficial ownership

Some examples ~ “transfers”

  • provision of free services to a corporation owned by family
  • deposit of funds to joint account except if some are withdrawn
  • transfer by a dissolved corporation (that did not exist)
  • disclaimer of a gift

4.3 Is a Loan a Transfer of Property?

Case law divided

Generally a loan is not a transfer BUT Damis Properties at para 134 and 594710 British Columbia Ltd. v R, 2016 TCC 288.

5 Non-arm’s Length Relationships

5.1 When is non-arm’s length determined?

At the time of the transfer. Kiperchuk, 2013 TCC 60

Damis Properties: “In so holding, the court confirmed that the relevant determination time for section 160 purposes was the time at which the transfer of property occurred, and that even if the parties had been previously dealing at non-arm’s length, this could not be used to ascribe a non-arm’s length relationship at a later time”

Finance Budget 2021 response. See discussion below. Parties not at arm’s length if they were not at arm’s length at any point in the series of transactions and one of the purposes of a transaction in the series was make them arm’s length.

6 Consideration Less than Fair Market Value

6.1 To whom must the consideration be given?

The text of 160 does not specify who must receive the consideration.

Woodland 2009 TCC 434: consideration must be given by the transferee (ie so deduction that taxpayer-husband received for making contribution to taxpayer-wife RRSP did not count).

What about two-step transfer? A (tax debtor) gives to B who sells to C. Is C liable because he paid fmv to B but not A? Damis ¶210: No.

7 Application of the Gaar to a Section 160 Assessment

594710 British Columbia – triggering a year-end after the transfer but before the tax liability was incurred.

Damis – transactions that resulted in parties ceasing to be non-arm’s length.

7.1 594710 British Columbia

7.1.1 Facts

7.1.2 The Tax Court’s Decision

7.2 Damis Properties

7.2.1 Facts

7.2.2 The Tax Court’s Decision

This is under appeal.

7.3 Comments on 594710 British Columbia and Damis Properties

8 Budget 2021

8.1 Deferral of Tax Debts

8.2 Avoidance of Non-arm’s Length Status

8.3 Valuation

This responds to Eyeball Networks.

Interestingly, the new rule allows for an examination of both the consideration given by the transferee, as well as the property transferred by the tax debtor. The fact that both sides of a transfer could be examined based on a net results test is somewhat concerning, because of the significant uncertainty it could introduce in related-party reorganizations.

8.4 Penalty

“Finally, the new section 160 measures proposed in Budget 2021 also introduce penalties for planners and promoters of schemes or plans designed to avoid section 160.”

8.5 Application

Transfers that occur on or after April 29, 2021.

8.6 Conclusion

Created: 2022-06-11 Sat 10:40


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