WHY TRANSFERRING ASSETS CAN MAKE A BAD SITUATION WORSE
When a taxpayer is assessed by the Canada Revenue Agency (“CRA”), the instinct to “do something” can be overwhelming. One of the most common reactions is to start moving assets to related parties – for example to spouses or children – in the hopes of keeping them out of the CRA’s reach while the tax dispute plays out.
A recent Tax Court of Canada ("TCC") decision shows why this instinct is a bad idea, and is a lesson for anyone trying to sidestep tax problems: what one does after the fact can often make things worse for all involved!
A recent Federal Court of Appeal (“FCA“) decision in Pillon v. Canada (2024 FCA 24) highlights the difficulties that Tax Debtors will face if trying to avoid GST and income tax debts. Both the Excise Tax Act (“ETA”) and the Income Tax Act (“ITA”) have extremely powerful collections tools allowing the Canada Revenue Agency (“CRA”) to assess certain non-arm’s length persons (think spouses, children, relatives, close friends and associates) that have been transferred a Tax Debtor’s property for less than fair market value (“FMV”). These rules can even apply to corporate shareholders receiving dividends from delinquent corporations.
