MOVING ASSETS IN TAX DISPUTE? THINK AGAIN!
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!
Gill v. The King
In Gill v. The King, 2026 TCC 18, a husband and sole homeowner (the “Husband”) was assessed by CRA for an outstanding income tax liability of approximately $1 million. While he was dealing with that, he transferred 99% of his ownership interest in the family home to his wife and son, who each paid only $1 for the transfer (the “Wife” and “Son”).
CRA responded by assessing both the Wife and Son personally for the Husband's uncollected tax liability, under subsection 160(1) of the Income Tax Act ("ITA"). The Wife and Son objected and ultimately appealed to the TCC for relief, arguing that they were unaware of the Husband's tax issues and had previously paid a greater amount as “consideration” for the home.
The TCC ultimately rejected these arguments, effectively finding that liability under subsection 160(1) of the ITA existed wherever the following two statutory preconditions were met:
- (1) a transfer of property of a tax debtor to a related person (which was met by the Husband’s transfer of his interests in the family home to the Wife and Son); and
- (2) the transfer was made for less than fair market value (which the TCC concluded was the case before it; while the Wife and Husband each claimed that the Wife had provided additional consideration for the home at an earlier time, the TCC rejected these claims due to vague and incomplete testimony, which was not supported with documentation).
Notably, the TCC also clarified that liability applied even where there is no intention to assist a tax debtor to avoid their tax liability.
Why Do I Care?
The Gill case is an example of a common – but dangerous – reaction to a tax assessment.
Whether done innocently or deliberately, moving assets to related third parties generally does not protect them from the government’s collections powers. Instead, it can expose the recipients to personal liability for the difference between the value of the asset transferred and the consideration paid. Furthermore, the TCC confirmed that this type of liability is not undone by transferring the asset again. In Gill, the Son later gave up his interest in the family home, yet his exposure remained.
While Gill was concerned with income tax, similar third-party liability rules also exist for GST/HST purposes under section 325 of the Excise Tax Act ("ETA"). As a result, transferring personal or business assets during a tax dispute is usually a very bad idea.
Experienced Tax Counsel can assist in fighting the underlying assessment!
Takeaways
Moving assets while a tax dispute is brewing is one of the fastest ways to make a bad situation worse. Canada’s tax laws allow the CRA to follow property and assess the people who receive it. For those facing an indirect tax audit or assessment, Experienced Indirect Tax Counsel can help.
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