For the purposes of section 160 of the Income Tax Act, it does not matter whether the transferor or transferee knows that the transferor owes tax at the time of the transfer. What they intend to accomplish by making the transfer is irrelevant as well. In both cases, section 160 will apply, if its other conditions are satisfied. But what about the case where the transferor purports to transfer property to the transferee without her knowledge or consent. In Leclair v Canada, 2011 TCC 323 the court held that section 160 did not apply in those circumstances.
In June, 2006, a father purported to transfer real property to his daughter for no consideration at a time when the father owed tax. The daughter knew nothing about the transfer of the property. She only found out about it when she visited her father in December, 2008, and he showed her an assessment from CRA in respect of the transfer. The daughter sought legal advice and, in February, 2009, she transferred the property back to the father.
Justice admitted that the daughter knew nothing about the transfer, but it argued that her lack of knowledge did not prevent the application of section 160. The court disagreed:
The Federal Court of Appeal [in Biderman v. The Queen, 2000 CanLII 14987, 2000 DTC 6149] makes it clear that failed testamentary gifts are not caught by section 160 and that the section does not alter the common law. There is nothing in section 160 that indicates that different rules or potential alteration of the common law applies to different types of transfers such that its application to inter-vivos gift should be the same as to testamentary gifts. A transfer of an inter-vivos gift must be a completed transfer, not a failed or void transfer; intent and delivery by and of one party alone is insufficient. In my opinion, section 160 should not be read as to apply to a failed inter-vivos gift. If a gift lacks any of the three requirements, it is void ab initio. In the case at bar, what is asserted is that there was no knowledge or acceptance of the gift and once the gift was known, it was repudiated within an acceptable time by transferring back the property to her father. In my opinion, this transfer back constitutes, in these circumstances, a valid disclaimer and, as such, there was no transfer, direct or indirect of the property; hence paragraph 160(1)(c) cannot apply to the Appellant. The word “dealing” in subsection 160(c) of the Act connotes actual action and not a state of relationship. In my view, that provision will not apply unless there is knowledge on the part of the transferee. Therefore, the transfer in issue herein is not caught by section 160.
