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CRA Always gets their Tax Debtors Third-Party Transfers Assessable & Assessed

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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.

Legal Framework

These collections tools are found in ETA 325 and ITA 160, two parallel provisions aimed at preventing Tax Debtors from avoiding the collection of tax by transferring their property for inadequate consideration.  This means that property transferred by a Tax Debtor (whether corporate or human) to the following classes of persons, for less than their proper FMV, is assessable in the hands of the transferee:  (a) spouse or common-law partners, (b) youth under the age of 18, and (c) non-arm’s length persons.  Where these sorts of transfers occur, CRA can assess the transferee for the difference between the FMV of the property and anything paid for the property. 

As we have written before, these provisions can be used by the CRA to assess a Tax Debtor’s loved ones, and even spouses and children not immune to CRA assessment.

Pillon v. Canada

In Pillon, Ms. Pillon’s friend, Mr. Wall was a Tax Debtor and transferred her $978,000 in cash.  (He owed about twice that in unpaid income taxes).  As might be expected, CRA assessed Ms. Pillon.  At the TCC Ms. Pillon argued that (1) the money received was a loan re-payment which (2) she and Mr. Wall had entered into at arm’s-length.  The TCC rejected the first argument finding no credible evidence to that effect, and also rejected the second argument on the basis of the Supreme Court of Canada’s decision in Canada v. McLarty (2008 SCC 79), which found “acting in concert without separate interests” to be a ground for finding “non-arm’s length”.

The FCA refused to overturn the TCC, concluding that it was reasonable to view Ms. Pillon and Mr. Wall at less than arm’s-length.  Although they might not be spouses or common-law partners, the relationships that they did have (which was not that well explained) were not at arm’s length either.  (There was some evidence that the two were living together and had some sort of financial or co-dependent relationship between them).


Whatever the merits of Ms. Pillon’s legal position, it was a position not accepted by two levels of the Canadian Court, and the Pillon decision is a poignant reminder that taxpayers cannot afford to let tax non-compliance fester, or ‘take a pass’ on GST or income tax assessments. 

Action is required!  A Voluntary Disclosure is often a good option for dealing with past GST and/or income tax obligations and non-compliance.

For Tax Assessments – which are valid unless overturned – the short answer is that fighting them, where merited, is required.  The debt arising from a Tax Assessment will persist, and the CRA has all the tools necessary to collect on those debts!

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